An FDIC-supervised institution has a designated loan requiring flood insurance. Its outstanding principal is $420,000, the house has $310,000 of insurable building value, and $250,000 is the applicable maximum NFIP building coverage available in this scenario. What is the required minimum amount under the federal rule?
Correct Answer
D) Coverage of $250,000, the lowest of the 3 figures now in play
D. The required minimum in these facts is $250,000. Compare the $420,000 outstanding balance with the stipulated $250,000 available coverage maximum. The $310,000 building value does not reduce that $250,000 amount in this scenario. Scope and exceptions: The question supplies the applicable limit. Do not use it for every property type or treat land as insured building value. An institution may have contractual requirements beyond the statutory minimum. Source: 12 CFR 339.3(a) — https://www.ecfr.gov/current/title-12/chapter-III/subchapter-B/part-339/section-339.3
Why This Is the Correct Answer
D. The required minimum in these facts is $250,000. Compare the $420,000 outstanding balance with the stipulated $250,000 available coverage maximum. The $310,000 building value does not reduce that $250,000 amount in this scenario. Scope and exceptions: The question supplies the applicable limit. Do not use it for every property type or treat land as insured building value. An institution may have contractual requirements beyond the statutory minimum.
Why the Other Options Are Wrong
Option A: Coverage of $365,000, the midpoint between balance and value
The rule does not average the figures.
Option B: Coverage of $310,000, matching the insurable value of the house
It exceeds the stipulated available coverage maximum.
Option C: Coverage of $420,000, matching the outstanding loan balance
It ignores that coverage maximum.
Exam Tip
Identify the applicable available coverage limit before calculating the minimum.
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