Flood insurance has been among the most consistently cited issues in federal enforcement actions, with 16 total in 2025 and 2026 as of June 2026. But federal agencies aren't the only ones paying attention. States are raising the bar.
Connecticut's new flood disclosure law, which went into effect on July 1, 2026, requires covered creditors to inform borrowers about flood risk — even when the property isn't in a designated flood zone.
Whether you operate in Connecticut or across multiple jurisdictions, now is the time to review your flood compliance practices to ensure your financial organization is prepared for both federal and state scrutiny.
Related: What Is Compliance Risk? A Guide for Financial Organizations
Federal Flood Compliance Requirements
The National Flood Insurance Act of 1968 and its amendments, including the Flood Disaster Protection Act of 1973, established the federal framework for flood compliance. Under these laws, covered financial institutions (FIs) must perform a flood hazard determination before making, increasing, extending, or renewing any loan secured by improved real estate or mobile homes on permanent foundations. That determination must be completed before closing to assess whether the property is in a Special Flood Hazard Area (SFHA).
Once the determination is made, additional requirements apply:
- Mandatory flood insurance coverage. If the property is in an SFHA and insurance is available under the National Flood Insurance Program (NFIP), coverage must be in place before closing. As of 2026, NFIP limits are $250,000 for residential building coverage, $100,000 for residential contents, and $500,000 each for commercial building and contents coverage.
- Notice to borrowers. Lenders must provide written notice to the borrower and loan servicer when a property is in an SFHA within a reasonable time before closing. Most FIs implement a 10-day minimum as best practice.
- Escrow requirements. Certain mortgage lenders must escrow flood insurance premiums for residential loans secured by improved real estate or mobile homes on permanent foundations in SFHAs.
- Force-placement. If a borrower fails to maintain required coverage, the lender must obtain a policy on the borrower's behalf and may charge the borrower for the cost.
- Life-of-loan monitoring. Flood zone designations change. Lenders are required to track coverage throughout the life of the loan, not just at origination.
State Flood Disclosure Requirements
State regulations are expanding across multiple areas, including consumer protection, data privacy, mortgage lending, and now flood disclosure.
Connecticut is the latest example. Under SB 9, effective July 1, 2026, any creditor originating residential mortgage loans in the state must provide borrowers with a written flood disclosure at least 10 days before closing.
What makes Connecticut's law notable is its scope. The requirement applies regardless of whether the property is in a designated flood zone. Borrowers must be informed that standard homeowners insurance doesn't cover flood damage, that flood damage can occur outside designated flood zones, and that they should consider consulting a licensed insurance producer or surplus lines broker. The disclosure must be in plain language, signed and dated by the borrower, and a copy retained in the loan file.
That last requirement will drive findings. A verbal conversation or a disclosure buried in the closing package won't satisfy it — examiners will be looking for a signed acknowledgment, and FIs that can't produce one may face documentation deficiency findings.
Connecticut isn't alone. New York enacted its own lender-specific flood insurance requirements in March 2025, requiring lenders to provide borrowers with a specific disclosure about coverage adequacy when flood insurance is required on a residential mortgage. More states will follow.
Related: Findings Management Practices Examiners Look for at FIs
Best Practices to Ensure Flood Compliance
As regulations evolve and state requirements multiply, being proactive about flood compliance is critical.
Policies and Procedures
Flood compliance policies need to cover the full loan lifecycle — from flood zone determination before closing through monitoring for the life of the loan. That means documenting procedures for pulling flood determinations, confirming that flood insurance meets required coverage amounts at closing and remains sufficient for the life of the loan. It also includes notifying borrowers, tracking renewals, handling force-placement, and maintaining documentation in the loan file.
For FIs originating mortgages across multiple jurisdictions, policies should also reflect applicable state disclosure requirements. Review and update procedures when new requirements take effect.
Related: How to Build Better Governance with Stronger Policies
Loan Closing Checklists
Closing checklists are a front-line control. Loan operations procedures should require that all documentation, notices, and disclosures are in place and reviewed before closing — including flood determination. Review your loan origination system (LOS) to confirm that state notice requirements are built into closing workflows, and update workflows where gaps exist.
Quality Control and Audits
QC and audit processes are where programs catch their own deficiencies before regulators do. That includes automated system checks and manual review processes that cover the full compliance picture. When state disclosure requirements apply, audit checklists should reflect those obligations alongside federal requirements.
Related: 6 Must-Have Elements of an Effective Audit Program
Life-of-Loan Monitoring
Many FIs underinvest in ongoing monitoring. Tracking coverage, renewal dates, policy lapses, and flood zone remap notifications doesn't scale on manual processes alone. As a portfolio grows, so does the risk of a lapse going unnoticed.
Training
Training should be role specific. Loan officers, processors, compliance staff, and closing teams all have different touchpoints in the flood compliance process.
Risk Assessments
Revisit flood compliance risk assessments when regulations change, when reviewing enforcement trends, or when your control environment changes. A risk assessment that hasn't been updated since before Connecticut's law took effect may not reflect your current exposure.
Related: Risk Management 101: Risk Assessments for Financial Institutions
Stay Current on Flood Compliance
Flood compliance has always required ongoing attention. The landscape is shifting — federal scrutiny remains high, and state legislatures are adding requirements that don't always make headlines until the deadline arrives.
With Connecticut’s law live, now is the time to make sure your flood compliance program can weather whatever comes next.
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