A $300,000 purchase sits in a special flood hazard area in a participating community and the buyer does not want flood coverage. Assuming the loan and building are subject to the federal mandatory-purchase rule, may the buyer waive the flood-insurance requirement?
Correct Answer
A) Coverage is mandatory and the loan may not close until it is bound
A. The borrower cannot waive the applicable mandatory flood coverage. The stem stipulates both an eligible flood-zone building and a loan subject to mandatory purchase. The lender must have adequate coverage in place for the covered transaction; the buyer’s preference does not remove the requirement. Scope and exceptions: Actual coverage determinations require the building location, loan coverage and applicable exceptions. This question supplies those conditions rather than testing every exemption. Source: Mandatory purchase requirement; 12 CFR 339.3(a) — https://www.fdic.gov/consumer-compliance-examination-manual/v-6-flood-disaster-protection-act
Why This Is the Correct Answer
A. The borrower cannot waive the applicable mandatory flood coverage. The stem stipulates both an eligible flood-zone building and a loan subject to mandatory purchase. The lender must have adequate coverage in place for the covered transaction; the buyer’s preference does not remove the requirement. Scope and exceptions: Actual coverage determinations require the building location, loan coverage and applicable exceptions. This question supplies those conditions rather than testing every exemption.
Why the Other Options Are Wrong
Option B: Coverage is optional if the structure sits 3 feet above base flood
The stated elevation alone does not negate the stipulated coverage requirement.
Option C: Coverage is optional where the buyer signs a written waiver of it
A signed borrower waiver does not satisfy mandatory purchase.
Option D: Coverage is mandatory only on loans above $500,000 in amount
The duty does not begin only when the loan exceeds $500,000.
Exam Tip
Do not confuse a borrower’s choice of coverage with whether coverage is legally required.
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