Non-Participating Communities

Although a credit union may make, increase, extend, or renew a loan in a non-participating community, it is still required to determine whether the collateral is located in an SFHA and if so, to notify the borrower. The credit union must also notify the borrower that flood insurance coverage under the NFIP is not available because the community does not participate in the NFIP. If the non-participating community has been identified for at least one year as containing an SFHA, properties located in the community are ineligible for federal disaster relief assistance in the event of a federally declared disaster.

Credit unions should carefully evaluate the risk involved with granting loans on property located in an SFHA in non-participating communities due to the lack of NFIP flood insurance coverage and the limited availability of federal disaster assistance. Credit unions lending in non-participating communities may want to require the purchase of private flood insurance, if available. Additionally, it is a sound business practice for credit unions with significant lending in non-participating communities to establish procedures that ensure such loans do not constitute an unacceptably large concentration of their loan portfolios.

Federal agency lenders such as the FHA, SBA, and VA will not subsidize, insure, or guarantee any loan if the property securing the loan is in an SFHA in a community not participating in the NFIP. In addition, Freddie Mac and Fannie Mae will not purchase mortgages secured by improved properties located in SFHAs in non-participating communities.

Last updated on December 01, 2022