Flood Insurance: Information on the Mandatory Purchase Requirement

Pursuant to a congressional request, GAO discussed its review of compliance with the flood insurance mandatory purchase requirement, focusing on: (1) the extent of compliance; (2) the reasons for noncompliance; and (3) the financial risk to the federal government from noncompliance. GAO noted that: (1) the Federal Disaster Protection Act of 1973 requires the purchase of flood insurance for any federal loan or grant for the acquisition or construction of a structure in a designated special flood hazard area; (2) most properties studied are exempt from flood insurance requirements; (3) it could not determine the reason for the large disparity in the compliance rate between the two states it studied; (4) the Federal Insurance Administration is concerned over the possibility of substantial noncompliance, while the Federal Deposit Insurance Corporation and the Federal Reserve System say noncompliance is not a major problem; (5) lender error is the most frequent reason for noncompliance; and (6) the federal government incurs greater costs due to noncompliance because uninsured property owners seek subsidized low interest loans from the Small Business Administration or grants from the Federal Emergency Management Agency to restore their losses.