Under the Flood Disaster Protection Act of 1973 and the National Flood Insurance Reform Act of 1994, purchasing flood insurance is obligatory for any federal or federally-related financial support utilized to acquire or construct buildings within Special Flood Hazard Areas (SFHAs). SFHAs are delineated as A or V flood zones on Federal Emergency Management Agency (FEMA) Flood Insurance Rate Maps (FIRMs).
This mandatory purchase requirement extends to secured loans from federally regulated financial entities, including financial institutions, commercial lenders, savings and loan associations, savings banks, and credit unions overseen by federal agencies such as the Federal Reserve, the Federal Deposit Insurance Corporation, the Comptroller of Currency, the Farm Credit Administration, the Office of Thrift Supervision, and the National Credit Union Administration. Additionally, it encompasses loans acquired by Fannie Mae or Freddie Mac in the secondary mortgage market.
Federal financial assistance programs impacted by these laws include loans and grants from agencies like the Department of Veterans Affairs, Farmers Home Administration, Federal Housing Administration, Small Business Administration, and FEMA for disaster assistance.