Loan Buyers Are Worried that Flood Coverage May Not Be Adequate.

Lenders and their insurance partners are facing renewed pressure from Fannie Mae, Freddie Mac and Ginnie Mae to ensure that properties at risk of flood damage carry adequate insurance, according to an insurance industry executive with Safeco Financial Institutions Solutions.

"That's one of the hot buttons right now," said Greg Nelson, a senior vice president for underwriting and claims at Safeco.

As a result, the secondary market agencies want mortgage servicers to make sure that homeowners carry adequate coverage to offset likely damage from a flood or storm.

Since companies such as Safeco provide servicing of insurance for clients, maintaining adequate coverage becomes an issue for them.

Fannie Mae, Freddie Mac and Ginnie Mae all have different policies regarding flood coverage. Fannie Mae requires coverage for 100% of the replacement cost or the maximum insurance amount allowable. Freddie Mac requires the greater of the loan balance or the replacement cost.

The Federal Emergency Management Agency requires the lesser of the loan balance or the replacement cost. FEMA's maximum coverage amount under the National Flood Insurance Program is $250,000.

"This is a relatively new issue, so nobody is quite sure how the government entities are going to audit it or review it," Mr. Nelson said. "What we are finding is that a lot of people do have flood coverage, but they don't meet these minimum requirements."