What triggers the requirement for flood insurance under the Flood Disaster Protection Act?

The requirement for flood insurance is triggered when a property is located in a Special Flood Hazard Area (SFHA). This designation identifies areas that are at a higher risk for flooding, typically based on historical data and flood zone maps. The Flood Disaster Protection Act mandates that federally backed or regulated mortgages for properties in these high-risk areas must have flood insurance as a condition of the loan.

The rationale behind this requirement is to protect both the lender's investment and the homeowner from significant financial losses associated with flood events, which can be devastating in SFHAs. Understanding this regulation ensures compliance for mortgage lenders and protects consumers from potential risks that can arise due to flooding.

Other criteria, such as property value or characteristics like having a basement, do not on their own determine the necessity for flood insurance. The geographical designation of being in an SFHA is the key factor that directly sets the requirement in motion.