Private Flood Insurance: Proposed New Interagency Questions and Answers

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FDIC Financial Institution Letters › Private Flood Insurance: Proposed New Interagency Questions and Answers

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DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Part 22

[Docket ID OCC-2020-0033]

FEDERAL RESERVE SYSTEM

12 CFR Part 208

[Docket No. R-1742]

RIN 7100-AG12

FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 339

RIN 3064-ZA16

FARM CREDIT ADMINISTRATION

12 CFR Part 614

NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Part 760

RIN 3133-AF31

Loans in Areas Having Special Flood Hazards; Interagency Questions and Answers

Regarding Private Flood Insurance

AGENCY: Office of the Comptroller of the Currency (OCC); Board of Governors of the Federal

Reserve System (Board); Federal Deposit Insurance Corporation (FDIC); Farm Credit

Administration (FCA); and National Credit Union Administration (NCUA).

ACTION: Notice and request for comment.

SUMMARY: The OCC, Board, FDIC, FCA, and NCUA (collectively, the Agencies) propose to

supplement the Interagency Questions and Answers Regarding Flood Insurance with new

questions and answers regarding the acceptance of flood insurance policies issued by private

insurers pursuant to the Agencies’ private flood insurance final rule issued in February 2019.

These questions and answers will assist lenders in meeting their responsibilities under this rule

and increase public understanding of the Agencies’ respective flood insurance regulations. The

Agencies solicit comment on all aspects of these new questions and answers.

DATES: Comments on the proposed questions and answers must be submitted on or before

[INSERT DATE 60 DAYS FROM DATE OF PUBLICATION IN THE FEDERAL

ADDRESSES: Interested parties are invited to submit written comments to:

OCC: Commenters are encouraged to submit comments through the Federal eRulemaking Portal.

Please use the title “Loans in Areas Having Special Flood Hazards; Interagency Questions and

Answers Regarding Private Flood Insurance” to facilitate the organization and distribution of the

comments

ION IN THE FEDERAL

ADDRESSES: Interested parties are invited to submit written comments to:

OCC: Commenters are encouraged to submit comments through the Federal eRulemaking Portal.

Please use the title “Loans in Areas Having Special Flood Hazards; Interagency Questions and

Answers Regarding Private Flood Insurance” to facilitate the organization and distribution of the

comments. You may submit comments by any of the following methods:



Federal eRulemaking Portal – Regulations.gov:

Go to https://regulations.gov/. Enter “Docket ID OCC-2020-0033” in the Search Box and click

“Search.” Public comments can be submitted via the “Comment” box below the displayed

document information or by clicking on the document title and then clicking the “Comment” box

on the top-left side of the screen. For help with submitting effective comments please click on

“Commenter’s Checklist.” For assistance with the Regulations.gov site, please call (877) 378-

5457 (toll free) or (703) 454-9859 Monday-Friday, 9am-5pm ET or e-mail

regulations@erulemakinghelpdesk.com.



Mail: Chief Counsel’s Office, Attention: Comment Processing, Office of the

Comptroller of the Currency, 400 7th Street, SW., suite 3E-218, Washington, DC 20219.



Hand Delivery/Courier: 400 7th Street, SW., suite 3E-218, Washington, DC

20219.

Instructions: You must include “OCC” as the agency name and “Docket ID OCC-2020-

0033” in your comment. In general, the OCC will enter all comments received into the docket

and publish the comments on the Regulations.gov website without change, including any

business or personal information provided such as name and address information, e-mail

addresses, or phone numbers. Comments received, including attachments and other supporting

materials, are part of the public record and subject to public disclosure. Do not include any

information in your comment or supporting materials that you consider confidential or

inappropriate for public disclosure

business or personal information provided such as name and address information, e-mail

addresses, or phone numbers. Comments received, including attachments and other supporting

materials, are part of the public record and subject to public disclosure. Do not include any

information in your comment or supporting materials that you consider confidential or

inappropriate for public disclosure.

You may review comments and other related materials that pertain to this action by the

following method:



Viewing Comments Electronically – Regulations.gov: Go to

https://regulations.gov/. Enter “Docket ID OCC-2020-0033” in the Search Box and click

“Search.” Click on the “Documents” tab and then the document’s title. After clicking the

document’s title, click the “Browse Comments” tab. Comments can be viewed and filtered by

clicking on the “Sort By” drop-down on the right side of the screen or the “Refine Results”

options on the left side of the screen. Supporting materials can be viewed by clicking on the

“Documents” tab and filtered by clicking on the “Sort By” drop-down on the right side of the

screen or the “Refine Documents Results” options on the left side of the screen.” For assistance

with the Regulations.gov site, please call (877) 378-5457 (toll free) or (703) 454-9859 Monday-

Friday, 9am-5pm ET or e-mail regulations@erulemakinghelpdesk.com.

The docket may be viewed after the close of the comment period in the same manner as

during the comment period.

Board: You may submit comments, identified by Docket No. R-1742, by any of the following

methods:

• Agency Web site: http://www.federalreserve.gov. Follow the instructions for submitting

comments at http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm.

• E-mail: regs.comments@federalreserve.gov. Include the docket number in the subject

line of the message.

• Fax: (202) 452-3819 or (202) 452-3102.

• Mail: Ann E

identified by Docket No. R-1742, by any of the following

methods:

• Agency Web site: http://www.federalreserve.gov. Follow the instructions for submitting

comments at http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm.

• E-mail: regs.comments@federalreserve.gov. Include the docket number in the subject

line of the message.

• Fax: (202) 452-3819 or (202) 452-3102.

• Mail: Ann E. Misback, Secretary, Board of Governors of the Federal Reserve System,

20th Street and Constitution Avenue, NW., Washington, DC 20551.

All public comments will be made available on the Board’s Web site at

http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm as submitted, unless modified

for technical reasons. Accordingly, your comments will not be edited to remove any identifying

or contact information. Public comments may also be viewed electronically or in paper form in

Room 146, 1709 New York Avenue, NW, Washington, DC 20006 between 9 a.m. and 5 p.m. on

weekdays.

FDIC: You may submit comments, identified by RIN 3064-ZA16, by any of the following

methods:

• Federal eRulemaking Portal: http://www.regulations.gov. Follow the instructions for

submitting comments.

• Agency Website: https://www.fdic.gov/regulations/laws/federal/. Follow the instructions

for submitting comments.

• Email: comments@fdic.gov. Include RIN 3064-ZA16 in the subject line of the message.

• Mail: James P. Sheesley, Assistant Executive Secretary, Attention: Comments-RIN 3064-

ZA16/Legal ESS, Federal Deposit Insurance Corporation, 550 17th Street NW, Washington, DC

20429.

• Hand Delivery/Courier: Comments may be hand-delivered to the guard station at the rear

of the 550 17th Street NW building (located on F Street) on business days between 7:00 a.m. and

5:00 p.m.

Instructions: All submissions must include the agency name and RIN 3064-ZA16 for this

rulemaking. Comments received will be posted without change to

https://www.fdic.gov/regulations/laws/federal/, including any personal information provided

hand-delivered to the guard station at the rear

of the 550 17th Street NW building (located on F Street) on business days between 7:00 a.m. and

5:00 p.m.

Instructions: All submissions must include the agency name and RIN 3064-ZA16 for this

rulemaking. Comments received will be posted without change to

https://www.fdic.gov/regulations/laws/federal/, including any personal information provided.

FCA: We offer a variety of methods for you to submit your comments. For accuracy and

efficiency reasons, commenters are encouraged to submit comments by e-mail or through the

FCA’s Web site. As facsimiles (fax) are difficult for us to process and achieve compliance with

section 508 of the Rehabilitation Act, we are no longer accepting comments submitted by fax.

Regardless of the method you use, please do not submit your comment multiple times via

different methods. You may submit comments by any of the following methods:

• E-mail: Send us an e-mail at reg-comm@fca.gov.

• FCA Web site: http://www.fca.gov. Click inside the “I want to ...” field near the top of the

page; select “comment on a pending regulation” from the dropdown menu; and click “Go.” This

takes you to an electronic public comment form.

• Mail: Kevin J. Kramp, Director, Office of Regulatory Policy, Farm Credit

Administration, 1501 Farm Credit Drive, McLean, VA 22102-5090.

You may review copies of all comments we receive on our Web site

at http://www.fca.gov. Once you are in the Web site, click inside the “I want to ...” field near the

top of the page; select “find comments on a pending regulation” from the dropdown menu; and

click “Go.” This will take you to the Comment Letters page where you can select the regulation

for which you would like to read the public comments. We will show your comments as

submitted, including any supporting data provided, but for technical reasons, we may omit items

such as logos and special characters

he page; select “find comments on a pending regulation” from the dropdown menu; and

click “Go.” This will take you to the Comment Letters page where you can select the regulation

for which you would like to read the public comments. We will show your comments as

submitted, including any supporting data provided, but for technical reasons, we may omit items

such as logos and special characters. Identifying information that you provide, such as phone

numbers and addresses, will be publicly available. However, we will attempt to remove e-mail

addresses to help reduce Internet spam. You may also review comments at our office in

McLean, Virginia. Please call us at (703) 883-4056 or email us at reg-comm@fca.gov to make

an appointment.

NCUA: You may submit comments identified by RIN 3133-AF31 by any of the following

methods (please send comments by one method only).

• Federal eRulemaking Portal: http://www.regulations.gov. Follow the instructions for

submitting comments.

• Fax: (703) 518-6319. Use the subject line “[Your name] Comments on “Interagency

Questions & Answers Regarding Private Flood Insurance” on the transmission cover sheet.

• Mail: Address to Melane Conyers-Ausbrooks, Secretary of the Board, National Credit

Union Administration, 1775 Duke Street, Alexandria, Virginia 22314-3428.

• Hand Delivery/Courier: Same as mail address.

Public Inspection: You can view all public comments on the agency’s website

at http://www.ncua.gov/Legal/Regs/Pages/PropRegs.aspx as submitted, except for those we

cannot post for technical reasons. The NCUA will not edit or remove any identifying or contact

information from the public comments. Due to social distancing measures in effect, the usual

opportunity to inspect paper copies of comments in the NCUA’s law library is not currently

available. After social distancing measures are relaxed, visitors may make an appointment to

review paper copies by calling (703) 518-6540 or emailing OGCMail@ncua.gov

edit or remove any identifying or contact

information from the public comments. Due to social distancing measures in effect, the usual

opportunity to inspect paper copies of comments in the NCUA’s law library is not currently

available. After social distancing measures are relaxed, visitors may make an appointment to

review paper copies by calling (703) 518-6540 or emailing OGCMail@ncua.gov.

FOR FURTHER INFORMATION CONTACT:

OCC: Rhonda L. Daniels, Compliance Specialist, Compliance Risk Policy Division, (202) 649-

5405; Heidi M. Thomas, Special Counsel, or Cyndy MacMahon, Attorney, Chief Counsel’s

Office, (202) 649-6350.

Board: Lanette Meister, Senior Supervisory Consumer Financial Services Analyst, (202) 452-

2705 or Vivian W. Wong, Senior Counsel, (202) 452-3667, Division of Consumer and

Community Affairs; Daniel Ericson, Senior Counsel, (202) 452-3359, Legal Division; for users

of Telecommunications Device for the Deaf (TDD) only, contact (202) 263-4869.

FDIC: Navid Choudhury, Counsel, Policy Unit, Legal Division, (202) 898-6526; or Simin Ho,

Senior Policy Analyst, Division of Depositor and Consumer Protection, (202) 898-6907.

FCA: Ira D. Marshall, Senior Policy Analyst, Office of Regulatory Policy, (703) 883-4379, TTY

(703) 883-4056 or Jennifer Cohn, Senior Counsel, Office of General Counsel, (720) 213-0440.

NCUA: Sarah Chung, Senior Staff Attorney, Office of General Counsel, (703) 518-6540, or Lou

Pham, Senior Credit Specialist, Office of Examination and Insurance, (703) 518-6360.

SUPPLEMENTARY INFORMATION:

Background

The National Flood Insurance Act of 1968 created the National Flood Insurance Program

(NFIP), which is administered by the Federal Emergency Management Agency (FEMA).1 The

NFIP enables property owners in participating communities to purchase flood insurance if the

community has adopted floodplain management ordinances and minimum standards for new and

substantially damaged or improved construction

ational Flood Insurance Act of 1968 created the National Flood Insurance Program

(NFIP), which is administered by the Federal Emergency Management Agency (FEMA).1 The

NFIP enables property owners in participating communities to purchase flood insurance if the

community has adopted floodplain management ordinances and minimum standards for new and

substantially damaged or improved construction. Thus, in participating communities, Federally-

backed flood insurance is available for property owners in flood risk areas.

Congress expanded the NFIP by enacting the Flood Disaster Protection Act of 1973

(FDPA).2 The FDPA made the purchase of flood insurance mandatory in connection with loans

made by Federally-regulated lending institutions when the loans are secured by improved real

estate or mobile homes located in a special flood hazard area (SFHA). The National Flood

Insurance Reform Act of 1994 (the Reform Act) (Title V of the Riegle Community Development

and Regulatory Improvement Act of 1994) comprehensively revised the Federal flood insurance

statutes.3 The Reform Act required the OCC, Board, FDIC, Office of Thrift Supervision (OTS),

and NCUA to revise their flood insurance regulations, and required the FCA to promulgate a

1 Pub. L. 90–448, 82 Stat. 572 (1968).

2 Pub. L. 93–234, 87 Stat. 975 (1973).

3 Title V of Pub. L. 103-325, 108 Stat. 2255 (1994).

ral flood insurance

statutes.3 The Reform Act required the OCC, Board, FDIC, Office of Thrift Supervision (OTS),

and NCUA to revise their flood insurance regulations, and required the FCA to promulgate a

1 Pub. L. 90–448, 82 Stat. 572 (1968).

2 Pub. L. 93–234, 87 Stat. 975 (1973).

3 Title V of Pub. L. 103-325, 108 Stat. 2255 (1994).

flood insurance regulation for the first time. The OCC, Board, FDIC, OTS, FCA, and NCUA4

fulfilled these requirements by issuing a joint final rule in the summer of 1996.5

Since 1997, the Interagency Questions and Answers6 have provided the lending industry

with guidance addressing a wide spectrum of technical flood insurance-related compliance

issues. In 2009, the Agencies comprehensively revised and reorganized the initial 1997

Interagency Questions and Answers. In 2011, the Agencies further finalized two additional

Q&As that were proposed in 2009.7 In October 2013, the Agencies jointly issued proposed

rules8 to implement the escrow, force placement, and private flood insurance provisions of the

Biggert-Waters Flood Insurance Reform Act of 2012 (the Biggert-Waters Act).9 In March 2014,

the Homeowner Flood Insurance Affordability Act (HFIAA) was enacted, which, among other

things, amended the Biggert-Waters Act’s requirements regarding the escrow of flood insurance

premiums and fees and created a new exemption from the mandatory flood insurance purchase

requirement for certain detached structures.10 The Agencies finalized the regulations to

implement provisions in the Biggert-Waters Act and HFIAA under the Agencies’ jurisdiction,

except for the provisions related to private flood insurance, with a final rule issued in July

4 Throughout this document “the Agencies” includes the OTS with respect to events that occurred prior to July 21,

2011, but does not include OTS with respect to events thereafter

e Biggert-Waters Act and HFIAA under the Agencies’ jurisdiction,

except for the provisions related to private flood insurance, with a final rule issued in July

4 Throughout this document “the Agencies” includes the OTS with respect to events that occurred prior to July 21,

2011, but does not include OTS with respect to events thereafter. Sections 311 and 312 of the Dodd-Frank Wall

Street Reform and Consumer Protection Act transferred OTS’s functions to other agencies on July 21, 2011. The

OTS’s supervisory functions relating to Federal savings associations were transferred to the OCC, while those

relating to State savings associations were transferred to the FDIC. See also 76 FR 39246 (July 6, 2011).

5 61 FR 45684 (Aug. 29, 1996).

6 Throughout this document, “Questions and Answers” refers to the Interagency Questions and Answers Regarding

Flood Insurance in its entirety; “Q&A” refers to an individual question and answer within the Questions and

Answers.

7 For additional information on the history of Interagency Questions and Answers, please see the preamble to the

July 2020 Proposed Interagency Questions and Answers at 85 FR 40442 (July 6, 2020).

8 78 FR 65108 (Oct. 30, 2013).

9 Pub. L. 112-141, 126 Stat. 916 (2012).

10 Pub. L. 113–89, 128 Stat. 1020 (2014).

2015.11 In February 2019, the Agencies finalized regulations that implement the private flood

insurance related provisions of the Biggert-Waters Act.12 This rule requires lenders to accept

“private flood insurance,” as defined in the Biggert-Waters Act (mandatory acceptance). In

order to assist lenders in evaluating whether a flood insurance policy meets the definition of

“private flood insurance,” the private flood insurance rule also includes a compliance aid

provision

ivate flood

insurance related provisions of the Biggert-Waters Act.12 This rule requires lenders to accept

“private flood insurance,” as defined in the Biggert-Waters Act (mandatory acceptance). In

order to assist lenders in evaluating whether a flood insurance policy meets the definition of

“private flood insurance,” the private flood insurance rule also includes a compliance aid

provision. Under the compliance aid provision, a lender may conclude that a policy meets the

definition of “private flood insurance,” without further review, if the policy, or an endorsement

to the policy, contains the compliance aid clause set forth in the rule. Moreover, the private

flood insurance rule permits a lender, at its discretion, to accept a flood insurance policy issued

by a private insurer, even if the policy does not meet the statutory and regulatory definition of

“private flood insurance,” provided the policy meets certain requirements in the rule

(discretionary acceptance). A lender also is permitted, at its discretion, to accept certain mutual

aid plans that meet the conditions stated in the rule.

On June 18, 2019, prior to the effective date of the final rule, the Agencies hosted a

webinar entitled “Interagency Flood Insurance Updates on Private Insurance Rule” to discuss

updates to the Agencies’ flood regulations concerning acceptance of private flood insurance

policies.13 The Agencies also discussed the private flood insurance rule at various flood

insurance conferences. Through these activities, the Agencies received numerous questions

regarding technical compliance with this rule.

11 80 FR 43216 (July 21, 2015). Subsequently, on November 7, 2016, the Agencies re-proposed the private flood

insurance provisions through a joint notice of proposed rulemaking (81 FR 78063).

12 84 FR 4953 (Feb. 20, 2019)

Through these activities, the Agencies received numerous questions

regarding technical compliance with this rule.

11 80 FR 43216 (July 21, 2015). Subsequently, on November 7, 2016, the Agencies re-proposed the private flood

insurance provisions through a joint notice of proposed rulemaking (81 FR 78063).

12 84 FR 4953 (Feb. 20, 2019).

13 For more information about the June 2019 interagency webinar on the private flood insurance rule, including the

presentation transcripts, see https://www.consumercomplianceoutlook.org/outlook-live/2019/interagency-flood-

insurance-regulation-update/.

On July 6, 2020, the Agencies issued proposed new and revised Interagency Questions

and Answers (July 2020 Proposed Questions and Answers) that covered a broad range of topics

related to technical flood insurance-related issues, including the escrow of flood insurance

premiums, the detached structure exemption to the mandatory purchase of flood insurance

requirement, and force-placement procedures.14 The July 2020 Proposed Questions and Answers

included only two Q&As related to private flood insurance because the private flood insurance

rule had only been in effect since July 2019.

As noted in the July 2020 Proposed Questions and Answers, the Agencies committed to

separately issuing for notice and comment proposed questions and answers relating to the private

flood insurance rule. Accordingly, the Agencies have carefully considered each of the many

questions received on the private flood insurance rule since its issuance, categorized and

consolidated the questions, and drafted 24 private flood insurance questions and answers to be

broadly applicable to supervised lenders and servicers. The Agencies are now issuing for public

comment these 24 proposed questions and answers, categorized in the three following sections:

PRIVATE FLOOD INSURANCE – MANDATORY ACCEPTANCE

II.

PRIVATE FLOOD INSURANCE – DISCRETIONARY ACCEPTANCE

III

olidated the questions, and drafted 24 private flood insurance questions and answers to be

broadly applicable to supervised lenders and servicers. The Agencies are now issuing for public

comment these 24 proposed questions and answers, categorized in the three following sections:

PRIVATE FLOOD INSURANCE – MANDATORY ACCEPTANCE

II.

PRIVATE FLOOD INSURANCE – DISCRETIONARY ACCEPTANCE

III.

PRIVATE FLOOD INSURANCE – GENERAL COMPLIANCE

To assist the reader, the Agencies have included references to specific Q&As from the

July 2020 Proposed Questions and Answers and from other Q&As in this proposal when helpful.

In addition, the following terms are used throughout this document: “Act” refers to the National

Flood Insurance Act of 1968 and the Flood Disaster Protection Act of 1973, as revised by the

National Flood Insurance Reform Act of 1994, Biggert-Waters Flood Insurance Reform Act of

14 See 85 FR 40442 (July 6, 2020).

2012 and Homeowner Flood Insurance Affordability Act (codified at 42 U.S.C. 4001 et seq).

“Regulation” refers to each Agency’s current rule.15 Furthermore, the Agencies note that some of

the information included in certain proposed questions and answers is derived from the preamble

of the private flood insurance final rule.

The Agencies plan to publish a final document in the Federal Register that consolidates

these proposed private flood insurance questions and answers and the July 2020 Proposed

Questions and Answers into one set of Interagency Questions and Answers Regarding Flood

Insurance.

Public Comments

The Agencies solicit comment on all aspects of the proposed questions and answers

regarding the private flood insurance rule. If lenders, community groups, or other parties have

unanswered questions or comments about the private flood insurance provision of the

Regulation, they are invited to submit them to the Agencies in their comments.

Section-by-Section Analysis

Public Comments

The Agencies solicit comment on all aspects of the proposed questions and answers

regarding the private flood insurance rule. If lenders, community groups, or other parties have

unanswered questions or comments about the private flood insurance provision of the

Regulation, they are invited to submit them to the Agencies in their comments.

Section-by-Section Analysis

PRIVATE FLOOD INSURANCE – MANDATORY ACCEPTANCE

The Agencies propose nine new Q&As to address issues regarding the mandatory

acceptance and the application of the compliance aid assurance clause with respect to the private

flood insurance provision of the Regulation. The new proposed Q&As would be designated as

Mandatory 1-9. Proposed new Q&A Mandatory 1 would address whether a lender may decide to

only accept private flood insurance policies under the mandatory acceptance provision of the

Regulation. The proposed answer would confirm that a lender may decide to only accept flood

15 The Agencies’ rules are codified at 12 CFR part 22 (OCC), 12 CFR part 208 (Board), 12 CFR part 339 (FDIC), 12

CFR part 614 (FCA), and 12 CFR part 760 (NCUA).

insurance policies issued by a private insurer that the lender is required to accept because the

policies meet the definition of “private flood insurance” under the Regulation. The proposed

answer also would clarify that a lender is not required to accept flood insurance policies that only

meet the criteria set forth in the discretionary acceptance or mutual aid provisions in the

Regulation.

Proposed new Q&A Mandatory 2 would address when a lender must review a flood

policy issued by a private flood insurer to make sure the policy meets the mandatory acceptance

criteria, other than at loan origination

y that a lender is not required to accept flood insurance policies that only

meet the criteria set forth in the discretionary acceptance or mutual aid provisions in the

Regulation.

Proposed new Q&A Mandatory 2 would address when a lender must review a flood

policy issued by a private flood insurer to make sure the policy meets the mandatory acceptance

criteria, other than at loan origination. The proposed response would explain that, other than at

origination, a lender must review a flood insurance policy issued by a private insurer when the

policy is up for renewal, or any time the borrower presents the lender with any new flood

insurance policy issued by a private insurer. The Agencies would clarify that a lender must

review the policy in these instances in addition to when a triggering event occurs (making,

increasing, extending or renewing a loan).

During this review, a lender may determine that the policy meets the mandatory

acceptance criteria without further review if the policy or an endorsement to the policy includes

the compliance aid assurance clause. However, if the policy does not meet the mandatory

acceptance criteria, the lender may still accept it if it meets the discretionary acceptance criteria

or, if applicable, the mutual aid plan criteria. The proposed answer would also explain that if the

policy does not meet any such criteria, the lender must notify the borrower in accordance with

the force placement provisions of the Regulation. If the borrower does not purchase flood

insurance that complies with the Regulation, the lender must purchase insurance on the

borrower’s behalf. In addition, the Agencies would clarify that a lender may rely on a previous

review of a flood insurance policy under the discretionary acceptance provision, provided there

rower in accordance with

the force placement provisions of the Regulation. If the borrower does not purchase flood

insurance that complies with the Regulation, the lender must purchase insurance on the

borrower’s behalf. In addition, the Agencies would clarify that a lender may rely on a previous

review of a flood insurance policy under the discretionary acceptance provision, provided there

are no changes to the terms of the policy. However, as required by the Regulation and discussed

below in proposed new Q&A Discretionary 4, the lender must document its conclusion regarding

sufficient protection of the loan in writing. The Agencies are also including a reference to

proposed new Q&A Discretionary 4.

Proposed new Q&A Mandatory 3 would address whether the private flood insurance

requirements under the Regulation require a lender to change its policy of not originating a

mortgage in non-participating communities or coastal barrier regions where the NFIP is not

available. The proposed answer would explain that the Regulation does not require a lender to

originate a loan that does not meet the lender’s underwriting criteria. The Agencies would note

that the flood insurance purchase requirement only applies to loans secured by structures located

or to be located in an SFHA in which flood insurance is available under the Act. As stated in

proposed Q&A Applicability 1 in the July 2020 Proposed Questions and Answers, the flood

insurance purchase requirement does not apply within non-participating communities where

NFIP insurance is not available under the Act. Therefore, the proposed answer would state that

the lender does not need to change its policy of not originating mortgages in areas where NFIP

insurance is unavailable solely because of the private flood insurance requirements under the

Regulation

the flood

insurance purchase requirement does not apply within non-participating communities where

NFIP insurance is not available under the Act. Therefore, the proposed answer would state that

the lender does not need to change its policy of not originating mortgages in areas where NFIP

insurance is unavailable solely because of the private flood insurance requirements under the

Regulation.

Proposed new Q&A Mandatory 4 would address whether the compliance aid assurance

clause could act as a conformity clause that would make a private policy conform to the

definition of private flood insurance under the Regulation. The Agencies propose to clarify that

the compliance aid assurance clause is not intended to act as a conformity clause but rather to

facilitate the ability of lenders and consumers to recognize policies that meet the definition of

“private flood insurance” and to promote the consistent acceptance of policies that meet this

definition.

Proposed new Q&A Mandatory 5 would provide that a lender is not required to accept a

flood insurance policy issued by a private insurer solely because the policy contains the

compliance aid assurance clause if the lender chooses to conduct its own review and determines

the flood insurance policy actually does not meet the mandatory acceptance requirements. The

proposed answer also would note that if a flood insurance policy issued by a private insurer does

not include the compliance aid assurance clause, the lender must still review the policy to

determine if it meets the requirements for private flood insurance as set forth in the Regulation

before the lender may choose to reject the policy.

Proposed new Q&A Mandatory 6 would discuss whether a lender is required to conduct

an additional review of a flood insurance policy under the mandatory acceptance provision if the

policy includes the compliance aid assurance clause

e policy to

determine if it meets the requirements for private flood insurance as set forth in the Regulation

before the lender may choose to reject the policy.

Proposed new Q&A Mandatory 6 would discuss whether a lender is required to conduct

an additional review of a flood insurance policy under the mandatory acceptance provision if the

policy includes the compliance aid assurance clause. The proposed answer would state that

under the mandatory acceptance provision of the Regulation, if a policy or an endorsement to the

policy contains the compliance aid assurance clause, a lender is not required to conduct any

further review of the policy in order to determine that the policy meets the definition of “private

flood insurance.” The Agencies also propose to clarify that the language of the compliance aid

assurance clause must be stated as set forth in the Regulation in order for the lender to rely on the

protections of the compliance aid assurance clause. However, the proposed answer would

provide that a lender need not reject a policy containing the compliance aid assurance clause if

the formatting, font, punctuation, and similar stylistic effects that do not change the substantive

meaning of the clause are different from the compliance aid assurance clause set forth in the

Regulation. The proposed answer would also include a reference to proposed new Q&A

Mandatory 7.

Proposed new Q&A Mandatory 7 would describe additional reviews a lender must

conduct when a flood insurance policy issued by a private insurer includes the compliance aid

assurance clause, as the clause only assists a lender in making the determination that a flood

insurance policy meets the definition of private flood insurance in the Regulation, and not other

requirements specified in the Regulation

new Q&A Mandatory 7 would describe additional reviews a lender must

conduct when a flood insurance policy issued by a private insurer includes the compliance aid

assurance clause, as the clause only assists a lender in making the determination that a flood

insurance policy meets the definition of private flood insurance in the Regulation, and not other

requirements specified in the Regulation. Specifically, the lender also must ensure that the

coverage is at least equal to the lesser of the outstanding principal balance of the designated loan

or the maximum limit of coverage available for the particular type of property under the Act, and

also should ensure that other key aspects of the policy are accurate, such as the borrower’s name

and property address. The proposed answer would also include a reference to proposed new

Q&A Mandatory 6.

Proposed new Q&A Mandatory 8 would address whether a lender may use the criteria

under the discretionary acceptance provision to decide whether to accept a policy that does not

contain the compliance aid assurance clause without first reviewing the policy to determine if it

meets the mandatory acceptance provision. The proposed answer would clarify that a lender

may first review the policy to determine whether it meets the criteria under the discretionary

acceptance provision. However, if the policy is not accepted under the discretionary acceptance

provision, the lender would still need to determine whether it must accept the policy under the

mandatory acceptance criteria. The proposed answer would also remind lenders to document

that a policy provides sufficient protection of the loan if the lender accepts the policy under the

discretionary acceptance provision of the Regulation.

cy is not accepted under the discretionary acceptance

provision, the lender would still need to determine whether it must accept the policy under the

mandatory acceptance criteria. The proposed answer would also remind lenders to document

that a policy provides sufficient protection of the loan if the lender accepts the policy under the

discretionary acceptance provision of the Regulation.

Lastly, new proposed Q&A Mandatory 9 would note that if the compliance aid assurance

clause is included on the declarations page, a lender may accept the policy without further review

to determine whether the policy meets the definition of private flood insurance. However, a

lender must also ensure compliance with the mandatory purchase requirement.

II.

PRIVATE FLOOD INSURANCE – DISCRETIONARY ACCEPTANCE

The Agencies propose to add four new Q&As to provide additional clarity on the

discretionary acceptance provision of the Regulation. These new Q&As would be designated as

Discretionary 1-4. Proposed new Q&A Discretionary 1 would address whether lenders are

required to accept flood insurance policies that meet the discretionary acceptance criteria. The

proposed answer would note that the discretionary acceptance criteria in the Regulation set forth

the minimum acceptable criteria that a flood insurance policy must have for the lender to accept

the policy under the discretionary acceptance provision. The proposed answer would clarify that

it is at the lender’s discretion to accept a policy that meets the discretionary acceptance criteria so

long as the policy does not meet the mandatory acceptance criteria.

Proposed new Q&A Discretionary 2 would address the requirements for documentation

to demonstrate that a policy provides sufficient protection of a loan when a lender accepts that

policy under the discretionary acceptance criteria

the lender’s discretion to accept a policy that meets the discretionary acceptance criteria so

long as the policy does not meet the mandatory acceptance criteria.

Proposed new Q&A Discretionary 2 would address the requirements for documentation

to demonstrate that a policy provides sufficient protection of a loan when a lender accepts that

policy under the discretionary acceptance criteria. The proposed answer would explain that the

Regulation requires the lender to document its conclusion in writing that the policy provides

sufficient protection of the loan, consistent with safety and soundness principles. In addition, the

proposed answer would include a reference to proposed Q&A Coverage 1 from the July 2020

Proposed Questions and Answers, which discusses some factors to consider when determining

whether a flood insurance policy issued by a private insurer provides sufficient protection of the

loan, consistent with safety and soundness principles.16 Furthermore, the proposed answer

would note that while the Regulation does not require any specific documentation to demonstrate

that the policy provides sufficient protection of the loan, lenders may include any information

that reasonably supports the lender’s conclusion following review of the policy.

Proposed new Q&A Discretionary 3 would address how a lender could evaluate concerns

related to an insurer’s solvency, strength, and ability to pay claims in order to determine whether

an insurance policy provides sufficient protection of a loan, consistent with general safety and

soundness principles. The proposed answer would provide that a lender may evaluate an

insurer’s solvency, strength, and ability to satisfy claims by obtaining information from the State

insurance regulator’s office of the State in which the property securing the loan is located, among

other options

n insurance policy provides sufficient protection of a loan, consistent with general safety and

soundness principles. The proposed answer would provide that a lender may evaluate an

insurer’s solvency, strength, and ability to satisfy claims by obtaining information from the State

insurance regulator’s office of the State in which the property securing the loan is located, among

other options. The proposed answer would further indicate that a lender could rely on the

licensing or other processes used by the State insurance regulator for such an evaluation. The

proposed answer would also include a reference to proposed Q&A Coverage 1 from the July

2020 Proposed Questions and Answers.

Proposed new Q&A Discretionary 4 would address whether a lender is required to review

a flood insurance policy upon renewal if that policy was issued by a private insurer and was

originally accepted in accordance with the discretionary acceptance requirements. The proposed

answer would provide that if a lender had accepted a flood insurance policy issued by a private

insurer in accordance with the discretionary acceptance requirements and the policy is renewed,

the lender would be required to review the policy upon renewal to ensure that it continues to

16 These factors include whether: (1) a policy’s deductibles are reasonable based on a borrower’s financial condition;

e policy issued by a private

insurer in accordance with the discretionary acceptance requirements and the policy is renewed,

the lender would be required to review the policy upon renewal to ensure that it continues to

16 These factors include whether: (1) a policy’s deductibles are reasonable based on a borrower’s financial condition;

(2) the insurer provides adequate notice of cancellation to the mortgagor and the mortgagee; (3) the terms and

conditions of the policy with respect to payment per occurrence or per loss and aggregate limits are adequate to

protect the lending institution’s interest in the collateral; (4) the flood insurance policy complies with applicable

State insurance laws; and (5) the private insurance company has the financial strength, solvency and ability to satisfy

claims. See 85 FR 40442, 40458 (July 6, 2020).

meet the discretionary acceptance requirements. The proposed answer would also state that a

lender would need to document its conclusion regarding sufficiency of the protection of the loan

in writing upon each renewal to indicate that the policy continues to provide sufficient protection

of the loan.

III.

PRIVATE FLOOD INSURANCE – GENERAL COMPLIANCE

The Agencies propose to add 11 new Q&As on topics related to the private flood

insurance provisions of the Regulation that are not covered in sections I and II above. The new

proposed Q&As would be designated as Private Flood Compliance 1-11.

New proposed Q&A Private Flood Compliance 1 would address questions on the

maximum deductible that a flood insurance policy issued by a private insurer can have for

properties located in an SFHA. Under the proposed answer, the Agencies would clarify that the

analysis would depend on whether the lender is accepting the flood insurance policy under the

mandatory acceptance provision or the discretionary acceptance provision

Compliance 1 would address questions on the

maximum deductible that a flood insurance policy issued by a private insurer can have for

properties located in an SFHA. Under the proposed answer, the Agencies would clarify that the

analysis would depend on whether the lender is accepting the flood insurance policy under the

mandatory acceptance provision or the discretionary acceptance provision.

Specifically, for a private flood insurance policy that the lender is accepting under the

mandatory acceptance provision, the proposed answer would state that the Regulation provides

that the policy must contain a deductible that is “at least as broad as” the maximum deductible in

the Standard Flood Insurance Policy (SFIP) under the NFIP, which means that the deductible is

no higher than the specified maximum under an SFIP for any total coverage amount up to the

maximum available under the NFIP at the time the policy is provided to the lender. The

proposed answer would provide that a policy with a coverage amount exceeding that available

under the NFIP may have a deductible exceeding the specific maximum deductible under an

SFIP. However, the proposed answer would also advise that for safety and soundness purposes,

the lender should consider whether the deductible is reasonable based on the borrower’s financial

condition, consistent with guidance the Agencies proposed in Q&A Amount 917 in the July 2020

Proposed Questions and Answers and with how deductibles may be evaluated under the

discretionary acceptance provision. The proposed answer would also set forth examples to aid in

compliance

ses,

the lender should consider whether the deductible is reasonable based on the borrower’s financial

condition, consistent with guidance the Agencies proposed in Q&A Amount 917 in the July 2020

Proposed Questions and Answers and with how deductibles may be evaluated under the

discretionary acceptance provision. The proposed answer would also set forth examples to aid in

compliance.

The Agencies note that this proposed guidance regarding the deductible for a private

flood insurance policy with a coverage amount exceeding that available under the NFIP is

different from the informal advice the Agencies previously provided in supplementary

information to the private flood insurance rule.18 In the supplementary information to the private

flood insurance rule, the Agencies advised that even for private flood insurance policies with

amounts exceeding the maximum coverage under the NFIP, the lender should still match the

SFIP deductible for the amount up to the maximum coverage amount under the NFIP but could

exceed the maximum deductible for an SFIP for the coverage over the maximum coverage

amount available under the NFIP. However, based on additional investigation, the Agencies

understand that these types of tiered deductibles are not common and the guidance provided in

the supplementary information may not be practicable. Therefore, the Agencies believe the

guidance they are proposing in Q&A Private Flood Compliance 1 with respect to deductibles for

private flood insurance policies accepted under the mandatory acceptance provision will be more

consistent with private flood insurance policies available in the marketplace and safety and

soundness standards.

17 Proposed Q&A Amount 9, adapted from current Q&A 17, provides that a lender should determine the

reasonableness of the deductible on a case-by-case basis, taking into account the risk that such a deductible would

pose to the borrower and the lender

od insurance policies available in the marketplace and safety and

soundness standards.

17 Proposed Q&A Amount 9, adapted from current Q&A 17, provides that a lender should determine the

reasonableness of the deductible on a case-by-case basis, taking into account the risk that such a deductible would

pose to the borrower and the lender. Proposed Q&A Amount 9 also states that a lender may not allow the borrower

to use a deductible amount equal to the insurable value of the property to avoid the mandatory purchase requirement

for flood insurance. See 85 FR 40442 at 40463 (July 6, 2020).

18 See 84 FR 4953 at 4957 (Feb. 20, 2019).

Proposed Q&A Private Flood Compliance 1 would also provide guidance for accepting

flood insurance policies issued by private insurers under the discretionary acceptance provision.

Under the Regulation, the policy must provide sufficient protection of the loan, consistent with

general safety and soundness principles. Proposed Q&A Private Flood Compliance 1 would note

that among the factors a lender could consider in determining whether a policy provides

sufficient protection of a loan is whether the policy’s deductible is reasonable based on the

borrower’s financial condition. Therefore, unlike the limitation on deductibles for policies

accepted under the mandatory acceptance provision for any total coverage amount up to the

maximum available under the NFIP, the proposed answer would provide that a lender can accept

a flood insurance policy issued by a private insurer under the discretionary acceptance provision

with a deductible higher than that for an SFIP for a similar type of property, provided the lender

has determined the policy provides sufficient protection of the loan, consistent with general

safety and soundness principles

nder the NFIP, the proposed answer would provide that a lender can accept

a flood insurance policy issued by a private insurer under the discretionary acceptance provision

with a deductible higher than that for an SFIP for a similar type of property, provided the lender

has determined the policy provides sufficient protection of the loan, consistent with general

safety and soundness principles.

Proposed Q&A Private Flood Compliance 1 would also include a reminder that,

consistent with the guidance provided in proposed Q&A Amount 9 in the July 2020 Proposed

Questions and Answers, a lender may not allow the borrower to use a deductible amount equal to

the insurable value of the property to avoid the mandatory purchase requirement for flood

insurance. This principle would apply whether the lender is evaluating the policy under the

mandatory acceptance provision or the discretionary acceptance provision.

The Agencies also received questions on whether a lender may require that the deductible

of any flood insurance policy issued by a private insurer be lower than the maximum deductible

for an NFIP policy. New proposed Q&A Private Flood Compliance 2 would clarify that a lender

may do so under both the mandatory acceptance provision and the discretionary acceptance

provision. For the mandatory acceptance provision, the Regulation requires that the private

flood insurance policy be at least as broad as an NFIP policy, which includes a requirement that

the private flood insurance policy contain a deductible no higher than the specified maximum

deductible for an SFIP. Therefore, the proposed answer would clarify that a lender may require a

borrower’s private flood insurance policy deductible be lower than the maximum deductible for

an NFIP policy in connection with a policy that the lender accepts under the mandatory

acceptance provision consistent with general safety and soundness principles and based on a

borrower’s financial condition, among other factors

herefore, the proposed answer would clarify that a lender may require a

borrower’s private flood insurance policy deductible be lower than the maximum deductible for

an NFIP policy in connection with a policy that the lender accepts under the mandatory

acceptance provision consistent with general safety and soundness principles and based on a

borrower’s financial condition, among other factors. With respect to the discretionary

acceptance provision, the proposed answer would note that the lender need only consider

whether the policy, including the stated deductible, provides sufficient protection of the loan,

consistent with general safety and soundness principles. The proposed answer would also

include a reference to proposed Q&A Private Flood Compliance 1.

Proposed new Q&A Private Flood Compliance 3 would provide guidance regarding

whether a lender may charge fees to the borrower for the lender’s use of a third party to review

flood insurance policies. The proposed answer would provide that the Act and the Regulation do

not prohibit lenders from charging fees to borrowers for contracting with a third party to review

flood insurance policies, with references to Q&A Fees 1 and Q&A Fees 2 proposed in the July

2020 Proposed Questions and Answers.19 The proposed answer would remind lenders that they

should be aware of any other applicable requirements regarding fees and disclosures of fees.

Proposed new Q&A Private Flood Compliance 4 addresses the lender’s responsibility to

ensure a flood insurance policy issued by a private insurer meets the requirements of the

19 Proposed Q&A Fees 1, adapted from current Q&A 69, lists the four instances in the Act and Regulation when a

lender or servicer can charge the borrower a fee for making a flood determination. Proposed Q&A Fees 2, adapted

from current Q&A 70, provides that charges made for life-of-loan reviews by determination firms may be passed to

the borrower under certain conditions

19 Proposed Q&A Fees 1, adapted from current Q&A 69, lists the four instances in the Act and Regulation when a

lender or servicer can charge the borrower a fee for making a flood determination. Proposed Q&A Fees 2, adapted

from current Q&A 70, provides that charges made for life-of-loan reviews by determination firms may be passed to

the borrower under certain conditions. See 85 FR 40442 at 40459-60 (July 6, 2020).

Regulation if the policy is not available prior to loan closing. The proposed answer would

provide that the Act and Regulation do not specify the acceptable types of documentation for a

lender to rely on when reviewing a flood insurance policy issued by a private insurer. The

proposed answer also would advise that lenders should determine whether they have sufficient

evidence to show the policy meets the requirements under the Regulation and that if the lender

does not have enough information to determine if the policy meets the private flood insurance

requirements under the Regulation, then the lender should timely request additional information

as necessary to complete its review. The proposed answer also would suggest some optional

steps that a lender could take to mitigate against closing delays.

The Agencies received many questions requesting guidance on whether a declarations

page provides sufficient information for a lender to determine whether the policy complies with

the Regulation. Proposed new Q&A Private Flood Compliance 5 would note that the answer

depends on the information contained in the declarations page. Under the proposed answer, if

the declarations page provides sufficient information for the lender to determine whether the

policy meets the mandatory acceptance provision or the discretionary acceptance provision of the

Regulation or if the declarations pages contains the compliance aid assurance clause, then the

lender may rely on the declarations page

on contained in the declarations page. Under the proposed answer, if

the declarations page provides sufficient information for the lender to determine whether the

policy meets the mandatory acceptance provision or the discretionary acceptance provision of the

Regulation or if the declarations pages contains the compliance aid assurance clause, then the

lender may rely on the declarations page. However, if the declarations page does not provide

sufficient information for the lender to determine whether the policy satisfies the mandatory

acceptance or the discretionary acceptance provision of the Regulation, the proposed answer

would suggest that the lender should request additional information about the policy to aid its

determination.

Proposed new Q&A Private Flood Compliance 6 would provide guidance on a lender’s

ability to accept multiple-peril policies. Specifically, the proposed answer would clarify that a

lender may accept multiple-peril policies that cover the hazard of flood under the private flood

insurance provisions of the Regulation, provided they meet the requirements of the Regulation.

Proposed new Q&A Private Flood Compliance 7 would address the question of how the

private flood insurance requirements of the Regulation would work in conjunction with

requirements of secondary market investors, such as the Federal National Mortgage Association

(Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac). The proposed

answer would first remind lenders that they must comply with the Federal flood insurance

requirements. The proposed answer would then note that secondary market investor

requirements are separate from the requirements of the Regulation. Therefore, if a lender plans

to sell loans to such an investor, the proposed answer would advise that a lender should carefully

review the investor’s requirements and direct questions regarding these requirements to the

appropriate entities

ance

requirements. The proposed answer would then note that secondary market investor

requirements are separate from the requirements of the Regulation. Therefore, if a lender plans

to sell loans to such an investor, the proposed answer would advise that a lender should carefully

review the investor’s requirements and direct questions regarding these requirements to the

appropriate entities.

The Agencies are proposing new Q&A Private Flood Compliance 8 to provide guidance

to servicers for loans covered by flood insurance mandated by the Act. Specifically, the

proposed answer would clarify that for loans serviced on behalf of lenders supervised by the

Agencies, the servicer must comply with the Regulation in determining whether a flood

insurance policy issued by a private insurer must be accepted under the mandatory acceptance

provision or may be accepted under the discretionary acceptance or mutual aid provisions.

However, for loans serviced on behalf of other entities not supervised by the Agencies, the

proposed answer would state that the servicer should comply with the terms of its contract with

such an entity. The proposed answer would suggest that when servicing loans on behalf of

Fannie Mae or Freddie Mac, where there are insurer rating requirements specified within those

entities’ servicing guidance or other relevant authorities that are not included in the Regulation,

the servicer should adhere to those servicing requirements.

The Agencies also propose to add three new Q&As to provide guidance regarding

optional methods lenders can use to address questions on whether an insurer is licensed,

admitted, or otherwise approved to do business in a particular State, which is one of the factors

lenders must evaluate under both the mandatory acceptance and discretionary acceptance

provisions

to those servicing requirements.

The Agencies also propose to add three new Q&As to provide guidance regarding

optional methods lenders can use to address questions on whether an insurer is licensed,

admitted, or otherwise approved to do business in a particular State, which is one of the factors

lenders must evaluate under both the mandatory acceptance and discretionary acceptance

provisions. Proposed new Q&A Private Flood Compliance 9 would explain how a lender could

determine whether an insurer is licensed, admitted, or otherwise approved in a particular State, or

whether a surplus lines20 or nonadmitted alien insurer21 is permitted to issue an insurance policy

in a particular State. The proposed answer would suggest that a lender may review the website

of the State insurance regulator where the collateral property is located to determine whether a

particular insurer is licensed, admitted, or otherwise permitted to issue insurance in a particular

State. The proposed answer also would advise that a lender could contact the State insurance

regulator directly. Further, the proposed answer notes that the information with respect to

surplus lines insurer eligibility may be available in the Consumer Insurance Search (CIS) tool

available on the National Association of Insurance Commissioners (NAIC) website.22 The

proposed answer would state that lenders also may consult commercial service providers

20 The National Association of Insurance Commissioners (NAIC) notes, “[t]he surplus lines market (inclusive of

U.S. and non-U.S. domiciled insurers) is a distinct segment of the industry consisting of non-admitted specialized

insurers covering risks not available within the admitted market…Surplus lines insurers are subject to regulatory

requirements and are overseen for solvency by their domiciliary [S]tate or country.”

https://content.naic.org/cipr_topics/topic_surplus_lines.htm

market (inclusive of

U.S. and non-U.S. domiciled insurers) is a distinct segment of the industry consisting of non-admitted specialized

insurers covering risks not available within the admitted market…Surplus lines insurers are subject to regulatory

requirements and are overseen for solvency by their domiciliary [S]tate or country.”

https://content.naic.org/cipr_topics/topic_surplus_lines.htm. For specific definitions related to surplus lines

insurers, lenders should review the State law in which the property is located.

21 The NAIC notes that “[w]hereas [S]tates monitor the eligibility of U.S. domiciled surplus lines insurers, alien

insurers eligible to write surplus lines premium are listed on the NAIC Quarterly Listing of Alien Insurers

[https://www.naic.org/prod_serv_alpha_listing.htm#quarterly_alien]...[Alien insurers] are prohibited from

establishing a U.S. branch office.” https://content.naic.org/cipr_topics/topic_surplus_lines.htm.

22 See https://content.naic.org/cis_consumer_information.htm.

regarding the eligibility of surplus lines insurers in particular States as long as the lenders have a

reasonable basis to believe that these service providers have reliable information. With regard to

nonadmitted alien insurers in particular, the proposed answer would suggest that lenders could

review the NAIC’s Quarterly Listing of Alien Insurers.23

Proposed new Q&A Private Flood Compliance 10 would address whether lenders may

accept policies issued by private insurers that are surplus lines insurers for noncommercial

residential properties. The proposed answer would explain that if the surplus lines insurer is

eligible or not disapproved to place insurance in the State or jurisdiction in which the property to

be insured is located, lenders may accept policies issued by surplus lines insurers as coverage for

noncommercial (i.e., residential) properties

urers that are surplus lines insurers for noncommercial

residential properties. The proposed answer would explain that if the surplus lines insurer is

eligible or not disapproved to place insurance in the State or jurisdiction in which the property to

be insured is located, lenders may accept policies issued by surplus lines insurers as coverage for

noncommercial (i.e., residential) properties. In addition, consistent with the Act and the

Regulation, the proposed answer would confirm that policies issued by surplus lines insurers for

noncommercial properties are covered in the definition of “private flood insurance” and in the

discretionary acceptance provision.24 In the definition of “private flood insurance,” surplus lines

policies for noncommercial properties are covered as policies that are issued by insurance

companies that are “otherwise approved to engage in the business of insurance by the insurance

regulator of the State or jurisdiction in which the property to be insured is located.” The

proposed answer also would note that within the discretionary acceptance provision,

noncommercial residential policies issued by surplus lines carriers are covered as policies that

are issued by private insurance companies that are “otherwise approved to engage in the business

23 See https://www.naic.org/prod_serv_alpha_listing.htm#quarterly_alien.

24 During discussion of the Biggert-Waters Act on the Senate floor, Sen. Crapo noted that surplus lines insurers can

provide flood insurance coverage for residential properties and asked for clarification regarding the inclusion of

surplus lines coverage in the definition of “private flood insurance.” In his response, Sen. Johnson stated, “[T]he

definition of ‘private flood insurance’ includes private flood insurance provided by a surplus lines insurer and is not

intended to limit surplus lines eligibility to nonresidential properties

erage for residential properties and asked for clarification regarding the inclusion of

surplus lines coverage in the definition of “private flood insurance.” In his response, Sen. Johnson stated, “[T]he

definition of ‘private flood insurance’ includes private flood insurance provided by a surplus lines insurer and is not

intended to limit surplus lines eligibility to nonresidential properties. While the Senator is correct that surplus lines

insurance is specifically mentioned in that context, overall the definition accommodates private flood insurance from

insurers who are ‘licensed, admitted, or otherwise approved’ in the State where the property is located.” 158 Cong.

Rec. S6051 (daily ed. Sept. 10, 2012).

of insurance by the insurance regulator of the State or jurisdiction in which the property to be

insured is located.”

As noted above, if the surplus lines insurer is eligible or not disapproved to place

insurance in the State or jurisdiction in which a property to be insured is located, the surplus lines

insurer is deemed to be “otherwise approved to engage in the business of insurance by the

insurance regulator of the State or jurisdiction in which the property to be insured is located” for

purposes of the Act and Regulation. Therefore, the proposed answer would note that even if the

surplus lines insurer is not considered to be engaged in the business of insurance under

applicable State law, the surplus lines insurer nevertheless would meet the criteria only for

purposes of this provision of the Regulation if the insurer is eligible or not disapproved to place

insurance in the State or jurisdiction in which a property to be insured is located

r would note that even if the

surplus lines insurer is not considered to be engaged in the business of insurance under

applicable State law, the surplus lines insurer nevertheless would meet the criteria only for

purposes of this provision of the Regulation if the insurer is eligible or not disapproved to place

insurance in the State or jurisdiction in which a property to be insured is located.

For example, under section 1776 of the California Insurance Code, the permission

granted to allow an insurance policy issued by a nonadmitted insurer to be placed in California,

“shall not be deemed or construed to authorize any insurer to do business in [California].”25 In

addition, section 1776 of the California Insurance Code states that “[p]lacement activities of a

licensed surplus line broker in accordance with [California law], including, but not limited to,

policy issuance, shall not be deemed or construed to be business done by the insurer in

[California].” 26 However, it is the Agencies’ understanding that these provisions of California

law do not make ineligible or disapprove any individual surplus lines insurer from placing

insurance in California if they meet all other applicable requirements in California law.

Consequently, a surplus lines insurer that is eligible or not disapproved to place insurance in

California is “otherwise approved” for purposes of the Regulation even though the surplus lines

25 Cal. Ins. Code § 1776.

26 Id.

surer from placing

insurance in California if they meet all other applicable requirements in California law.

Consequently, a surplus lines insurer that is eligible or not disapproved to place insurance in

California is “otherwise approved” for purposes of the Regulation even though the surplus lines

25 Cal. Ins. Code § 1776.

26 Id.

insurer is not authorized to do business in California for purposes of Section 1776 of the

California Insurance Code.

Proposed new Q&A Private Flood Compliance 11 would address whether a lender may

accept a private flood insurance policy that includes a compliance aid assurance clause, but also

includes a disclaimer that the “insurer is not licensed in the State or jurisdiction in which the

property is located.” The proposed answer would explain that there are circumstances under

which lenders may accept a policy issued by an insurer that is not licensed in the State or

jurisdiction in which the property is located. For example, a lender would be able to accept a

policy issued by a surplus lines insurer recognized or not disapproved by the relevant State

insurance regulator as protection for loan collateral that is a nonresidential commercial property.

The proposed answer would also provide that a lender may accept a policy issued by a surplus

lines insurer as protection for loan collateral that includes residential property as a policy issued

by an insurance company that is “otherwise approved to engage in the business of insurance by

the insurance regulator of the State or jurisdiction in which the property to be insured is located.”

The proposed answer would include a cross-reference to proposed Q&A Private Flood

Compliance 10.

Interagency Questions and Answers Regarding Private Flood Insurance

I. PRIVATE FLOOD INSURANCE – MANDATORY ACCEPTANCE

MANDATORY 1

s “otherwise approved to engage in the business of insurance by

the insurance regulator of the State or jurisdiction in which the property to be insured is located.”

The proposed answer would include a cross-reference to proposed Q&A Private Flood

Compliance 10.

Interagency Questions and Answers Regarding Private Flood Insurance

I. PRIVATE FLOOD INSURANCE – MANDATORY ACCEPTANCE

MANDATORY 1. May a lender decide to only accept private flood insurance policies

under the mandatory acceptance provision of the Regulation?

Yes. A lender is only required to accept flood insurance policies issued by a private

insurer that meet the definition of “private flood insurance” under the Regulation. A lender is

not required to accept flood insurance policies that only meet the criteria set forth in the

discretionary acceptance or mutual aid provision of the Regulation.

MANDATORY 2. Apart from loan origination, when must a lender review a flood policy

issued by a private flood insurer?

Once a flood insurance policy issued by a private insurer comes up for renewal or any

time the borrower presents the lender with any new flood insurance policy issued by a private

insurer, regardless of whether a triggering event occurred (making, increasing, extending or

renewing a loan), the lender must review the policy to determine whether it meets the mandatory

acceptance criteria.27 A lender may determine that the policy meets the mandatory acceptance

criteria without further review if the policy or an endorsement to the policy includes the

compliance aid assurance clause.28 If the policy does not meet the mandatory acceptance

criteria, the lender may still accept the policy if it meets the discretionary acceptance criteria or,

if applicable, the mutual aid plan criteria

A lender may determine that the policy meets the mandatory acceptance

criteria without further review if the policy or an endorsement to the policy includes the

compliance aid assurance clause.28 If the policy does not meet the mandatory acceptance

criteria, the lender may still accept the policy if it meets the discretionary acceptance criteria or,

if applicable, the mutual aid plan criteria. If the policy does not meet the mandatory acceptance,

discretionary acceptance, or mutual aid plan criteria, the lender must notify the borrower in

accordance with the force placement provisions of the Regulation.29 If the borrower does not

purchase flood insurance that complies with the Regulation, the lender must purchase insurance

on the borrower’s behalf.30

27 See 12 CFR 22.3(c)(1) (OCC); 12 CFR 208.25(c)(3)(i) (Board); 12 CFR 339.3(c)(1) (FDIC); 12 CFR

614.4930(c)(1) (FCA); and 12 CFR 760.3(c)(1) (NCUA).

28 12 CFR 22.3(c)(2) (OCC); 12 CFR 208.25(c)(3)(ii) (Board); 12 CFR 339.3(c)(2) (FDIC); 12 CFR 614.4930(c)(2)

(FCA); and 12 CFR 760.3(c)(2) (NCUA).

29 12 CFR 22.7 (OCC); 12 CFR 208.25(g) (Board); 12 CFR 339.7 (FDIC); 12 CFR 614.4945 (FCA); and 12 CFR

760.7 (NCUA).

30 12 CFR 22.7(a) (OCC); 12 CFR 208.25(g)(1) (Board); 12 CFR 339.7(a) (FDIC); 12 CFR 614.4945(a) (FCA); and

12 CFR 760.7(a) (NCUA).

If the lender has previously reviewed the flood insurance policy under the discretionary

acceptance provision to ensure that the policy meets the private flood insurance requirements of

the Regulation, the lender may rely on its previous review, provided there are no changes to the

terms of the policy. However, as required by the Regulation, the lender must document its

conclusion regarding sufficiency of protection of the loan in writing.31 See Q&A Discretionary

MANDATORY 3

acceptance provision to ensure that the policy meets the private flood insurance requirements of

the Regulation, the lender may rely on its previous review, provided there are no changes to the

terms of the policy. However, as required by the Regulation, the lender must document its

conclusion regarding sufficiency of protection of the loan in writing.31 See Q&A Discretionary

MANDATORY 3. If a lender has a policy not to originate a mortgage in non-participating

communities or coastal barrier regions where the NFIP is not available, do the private

flood insurance requirements under the Regulation require a lender to change its policy?

The Regulation does not require that a lender originate a loan that does not meet the

lender’s underwriting criteria. The Agencies note that the flood insurance purchase requirement

only applies to loans secured by structures located or to be located in an SFHA in which flood

insurance is available under the Act.32 As noted in Q&A Applicability 1, the flood insurance

purchase requirement does not apply within non-participating communities, where NFIP

insurance is not available under the Act. Therefore, the lender does not need to change its policy

of not originating mortgages in areas where NFIP insurance is unavailable solely because of the

private flood insurance requirements under the Regulation.

MANDATORY 4. Did the Agencies intend the compliance aid assurance clause to act as a

conformity clause that would make a private policy conform to the definition of private

flood insurance?

31 12 CFR 22.3(c)(3) (OCC); 12 CFR 208.25(c)(3)(iii) (Board); 12 CFR 339.3(c)(3) (FDIC); 12 CFR 614.4930(c)(3)

(FCA); and 12 CFR 760.3(c)(3) (NCUA).

32 Pub. L. 93–234, 87 Stat. 975 (1973).

mpliance aid assurance clause to act as a

conformity clause that would make a private policy conform to the definition of private

flood insurance?

31 12 CFR 22.3(c)(3) (OCC); 12 CFR 208.25(c)(3)(iii) (Board); 12 CFR 339.3(c)(3) (FDIC); 12 CFR 614.4930(c)(3)

(FCA); and 12 CFR 760.3(c)(3) (NCUA).

32 Pub. L. 93–234, 87 Stat. 975 (1973).

No. The Agencies did not intend the compliance aid assurance clause to act as a

conformity clause. Rather, the compliance aid assurance clause is intended to facilitate the

ability of lenders, as well as consumers, to recognize policies that meet the definition of “private

flood insurance” and promote the consistent acceptance of policies that meet this definition. The

compliance aid provision is intended to leverage the expertise of insurers to assist lenders in

satisfying the requirements of the Regulation.

MANDATORY 5. Is a lender required to accept a flood insurance policy issued by a

private insurer that includes the compliance aid assurance clause? Conversely, may a

lender reject a flood insurance policy issued by a private insurer solely because it does not

contain the compliance aid assurance clause?

A lender is not required to accept a flood insurance policy issued by a private insurer

solely because the policy contains the compliance aid assurance clause if the lender chooses to

conduct its own review and determines the flood insurance policy actually does not meet the

mandatory acceptance requirements.

If a flood insurance policy issued by a private insurer does not include the compliance aid

assurance clause, the lender must still review the policy to determine if it meets the requirements

for private flood insurance as set forth in the Regulation before the lender may choose to reject

the policy.33

MANDATORY 6

urance policy actually does not meet the

mandatory acceptance requirements.

If a flood insurance policy issued by a private insurer does not include the compliance aid

assurance clause, the lender must still review the policy to determine if it meets the requirements

for private flood insurance as set forth in the Regulation before the lender may choose to reject

the policy.33

MANDATORY 6. If a flood insurance policy issued by a private insurer includes the

compliance aid assurance clause, does a lender need to conduct an additional review of the

policy for compliance with the mandatory acceptance provision of the Regulation?

33 12 CFR 22.3(c) (OCC); 12 CFR 208.25(c)(3) (Board); 12 CFR 339.3(c) (FDIC); 12 CFR 614.4930(c) (FCA); and

12 CFR 760.3(c) (NCUA).

No, under the mandatory acceptance provision of the Regulation, if a policy or an

endorsement to the policy contains the compliance aid assurance clause, further review is not

necessary in order for the lender to determine that a policy meets the definition of “private flood

insurance.”34

It is important to note that, in order for the lender to rely on the compliance aid assurance

clause without further review of the policy, the language of the compliance aid assurance clause

must be stated in the policy, or as an endorsement to the policy, as set forth in the Regulation. If

the language is different from the compliance aid assurance clause set forth in the Regulation, the

lender cannot rely on the protections of the compliance aid assurance clause in the Regulation

and should review the policy to determine if it meets the definition of private flood insurance.

However, a policy containing the compliance aid assurance clause need not be rejected if there

are stylistic differences, such as formatting, font, and punctuation that do not change the

substantive meaning of the clause, from the compliance aid assurance clause included in the

Regulation

ulation

and should review the policy to determine if it meets the definition of private flood insurance.

However, a policy containing the compliance aid assurance clause need not be rejected if there

are stylistic differences, such as formatting, font, and punctuation that do not change the

substantive meaning of the clause, from the compliance aid assurance clause included in the

Regulation. See also Q&A Mandatory 7.

MANDATORY 7. What additional reviews does a lender need to conduct if the flood

insurance policy issued by a private insurer includes the compliance aid assurance clause?

Although a lender may rely on the compliance aid assurance clause to determine that a

flood insurance policy meets the definition of private flood insurance in the Regulation, the

lender must also ensure that the coverage is at least equal to the lesser of the outstanding

principal balance of the designated loan, or the maximum limit of coverage available for the

34 12 CFR 22.3(c)(2) (OCC); 12 CFR 208.25(c)(3)(ii) (Board); 12 CFR 339.3(c)(2) (FDIC); 12 CFR 614.4930(c)(2)

(FCA); and 12 CFR 760.3(c)(2) (NCUA).

particular type of property under the Act.35 The lender should also ensure that other key aspects

of the policy are accurate, such as the borrower’s name and property address. See also Q&A

Mandatory 6.

MANDATORY 8. If a flood insurance policy issued by a private issuer does not include a

compliance aid assurance clause, can a lender use the criteria under the discretionary

acceptance provision to decide whether to accept the policy without first checking to see if

the policy meets the criteria under the mandatory acceptance provision?

Yes, the lender may first review the policy to determine whether it meets the criteria

under the discretionary acceptance provision.36 However, even if the policy does not meet the

discretionary acceptance criteria, the lender will still need to determine whether it must accept

the policy unde

ut first checking to see if

the policy meets the criteria under the mandatory acceptance provision?

Yes, the lender may first review the policy to determine whether it meets the criteria

under the discretionary acceptance provision.36 However, even if the policy does not meet the

discretionary acceptance criteria, the lender will still need to determine whether it must accept

the policy under the mandatory acceptance criteria.37

Note that if the lender accepts a policy under the discretionary acceptance provision, the

Regulation requires the lender to document that the policy provides sufficient protection of the

loan.38

MANDATORY 9. If the compliance aid assurance clause is on the declarations page, may

a lender accept the policy without further review?

If the compliance aid assurance clause is included on the declarations page, a lender may

accept the policy without further review to determine whether the policy meets the definition of

35 12 CFR 22.3(a) (OCC); 12 CFR 208.25(c)(1) (Board); 12 CFR 339.3(a) (FDIC); 12 CFR 614.4930(a) (FCA); and

12 CFR 760.3(a) (NCUA).

36 12 CFR 22.3(c)(3) (OCC); 12 CFR 208.25(c)(3)(iii) (Board); 12 CFR 339.3(c)(3) (FDIC); 12 CFR 614.4930(c)(3)

(FCA); and 12 CFR 760.3(c)(3) (NCUA).

37 12 CFR 22.3(c) (OCC); 12 CFR 208.25(c)(3) (Board); 12 CFR 339.3(c) (FDIC); 12 CFR 614.4930(c) (FCA); and

12 CFR 760.3(c) (NCUA).

38 12 CFR 22.3(c)(3) (OCC); 12 CFR 208.25(c)(3)(iii) (Board); 12 CFR 339.3(c)(3) (FDIC); 12 CFR 614.4930(c)(3)

(FCA); and 12 CFR 760.3(c)(3) (NCUA).

208.25(c)(3)(iii) (Board); 12 CFR 339.3(c)(3) (FDIC); 12 CFR 614.4930(c)(3)

(FCA); and 12 CFR 760.3(c)(3) (NCUA).

37 12 CFR 22.3(c) (OCC); 12 CFR 208.25(c)(3) (Board); 12 CFR 339.3(c) (FDIC); 12 CFR 614.4930(c) (FCA); and

12 CFR 760.3(c) (NCUA).

38 12 CFR 22.3(c)(3) (OCC); 12 CFR 208.25(c)(3)(iii) (Board); 12 CFR 339.3(c)(3) (FDIC); 12 CFR 614.4930(c)(3)

(FCA); and 12 CFR 760.3(c)(3) (NCUA).

private flood insurance. However, a lender must also ensure compliance with the mandatory

purchase requirement. See Q&A Mandatory 7.

II. PRIVATE FLOOD INSURANCE – DISCRETIONARY ACCEPTANCE

DISCRETIONARY 1. Are lenders required to accept flood insurance policies that meet

the discretionary acceptance criteria?

No, the discretionary acceptance criteria in the Regulation sets forth the minimum

acceptable criteria that a flood insurance policy must have for the lender to accept the policy

under the discretionary acceptance provision. It is at the lender’s discretion to accept a policy

that meets the discretionary acceptance criteria so long as the policy does not meet the

mandatory acceptance criteria.

DISCRETIONARY 2. If the lender determines that a flood insurance policy meets the

discretionary acceptance criteria and accepts that policy, what documentation will

demonstrate that the policy provides sufficient protection of the loan, consistent with

general safety and soundness principles?

The Regulation requires the lender to document its conclusion in writing that the policy

provides sufficient protection of the loan, consistent with general safety and soundness principles

(see also Q&A Coverage 1). While the Regulation does not require any specific documentation

to demonstrate that the policy provides sufficient protection of the loan, lenders may include any

information that reasonably supports the lender’s conclusion following review of the policy.

DISCRETIONARY 3

ides sufficient protection of the loan, consistent with general safety and soundness principles

(see also Q&A Coverage 1). While the Regulation does not require any specific documentation

to demonstrate that the policy provides sufficient protection of the loan, lenders may include any

information that reasonably supports the lender’s conclusion following review of the policy.

DISCRETIONARY 3. How can a lender evaluate the sufficiency of an insurer’s solvency,

strength, and ability to satisfy claims when determining whether a flood insurance policy

provides sufficient protection of the loan, consistent with general safety and soundness

principles?

A lender may evaluate an insurer’s solvency, strength, and ability to satisfy claims by

obtaining information from the State insurance regulator’s office of the State in which the

property securing the loan is located, among other options. A lender can rely on the licensing or

other processes used by the State insurance regulator for such an evaluation. See Q&A Coverage

DISCRETIONARY 4. If a flood insurance policy issued by a private insurer that was

originally accepted in accordance with the discretionary acceptance requirements is

renewed annually, is the lender required to review the policy upon renewal?

If a lender had accepted a flood insurance policy issued by a private insurer in accordance

with the discretionary acceptance requirements and the policy is renewed, the lender must review

the policy upon renewal to ensure that it continues to meet the discretionary acceptance

requirements.39 The lender must also document its conclusion regarding sufficiency of the

protection of the loan in writing upon each renewal to indicate that the policy continues to

provide sufficient protection of the loan.40

III. PRIVATE FLOOD INSURANCE – PRIVATE FLOOD COMPLIANCE

PRIVATE FLOOD COMPLIANCE 1

icy upon renewal to ensure that it continues to meet the discretionary acceptance

requirements.39 The lender must also document its conclusion regarding sufficiency of the

protection of the loan in writing upon each renewal to indicate that the policy continues to

provide sufficient protection of the loan.40

III. PRIVATE FLOOD INSURANCE – PRIVATE FLOOD COMPLIANCE

PRIVATE FLOOD COMPLIANCE 1. What is the maximum deductible a flood insurance

policy issued by a private insurer can have for residential or commercial properties located

in an SFHA?

39 12 CFR 22.3(c) (OCC); 12 CFR 208.25(c)(3) (Board); 12 CFR 339.3(c) (FDIC); 12 CFR 614.4930(c) (FCA); and

12 CFR 760.3(c) (NCUA).

40 12 CFR 22.3(c)(3) (OCC); 12 CFR 208.25(c)(3)(iii) (Board); 12 CFR 339.3(c)(3) (FDIC); 12 CFR 614.4930(c)(3)

(FCA); and 12 CFR 760.3(c)(3) (NCUA).

The maximum deductible for a flood insurance policy issued by a private insurer varies

depending on whether the lender accepts the policy under the mandatory acceptance or the

discretionary acceptance provision. For purposes of compliance with the mandatory acceptance

provision, the Regulation provides that a policy must contain a deductible that is “at least as

broad as” in a Standard Flood Insurance Policy (SFIP) — i.e., no higher than the specified

maximum under an SFIP — for any total coverage amount up to the maximum available under

the NFIP at the time the policy is provided to the lender.41 For a private policy with a coverage

amount exceeding that available under the NFIP, the deductible may exceed the specific

maximum deductible under an SFIP. However, for safety and soundness purposes, the lender

should consider whether the deductible is reasonable based on the borrower’s financial

condition, among other factors. See Q&A Amount 9

time the policy is provided to the lender.41 For a private policy with a coverage

amount exceeding that available under the NFIP, the deductible may exceed the specific

maximum deductible under an SFIP. However, for safety and soundness purposes, the lender

should consider whether the deductible is reasonable based on the borrower’s financial

condition, among other factors. See Q&A Amount 9.

 For example, if a private policy for a commercial building provided $1,000,000 of flood

insurance coverage, which is in excess of the NFIP maximum coverage of $500,000 for a

commercial building, then it would be acceptable for a million-dollar policy to have a

deductible higher than the maximum deductible for a policy available under the NFIP.

The lender should consider whether the deductible is reasonable based on the borrower’s

financial condition.

 Similarly, if a private policy for a residential building provided $1,000,000 of flood

insurance coverage, which is in excess of the NFIP maximum coverage of $250,000 for a

residential building, then it would be acceptable for a million-dollar policy to have a

deductible higher than the maximum deductible for a policy available under the NFIP.

41 12 CFR 22.2(k) (OCC); 12 CFR 208.25(b)(9) (Board); 12 CFR 339.2 (FDIC); 12 CFR 614.4925 (FCA); and 12

CFR 760.2 (NCUA).

The lender should consider whether the deductible is reasonable based on the borrower’s

financial condition.

For purposes of compliance with the discretionary acceptance provision, the Regulation

requires that the policy provide sufficient protection of the loan, consistent with general safety

and soundness principles.42 Among the factors a lender could consider in determining whether a

policy provides sufficient protection of a loan is whether the policy’s deductible is reasonable

based on the borrower’s financial condition

with the discretionary acceptance provision, the Regulation

requires that the policy provide sufficient protection of the loan, consistent with general safety

and soundness principles.42 Among the factors a lender could consider in determining whether a

policy provides sufficient protection of a loan is whether the policy’s deductible is reasonable

based on the borrower’s financial condition. Unlike the limitation on deductibles for policies

accepted under the mandatory acceptance provision for any total coverage amount up to the

maximum available under the NFIP, a lender can accept a flood insurance policy issued by a

private insurer under the discretionary acceptance provision with a deductible higher than that

for an SFIP for a similar type of property, provided the lender has determined the policy provides

sufficient protection of the loan, consistent with general safety and soundness principles.

Whether the lender is evaluating the policy under the mandatory acceptance provision or

the discretionary acceptance provision, a lender may not allow the borrower to use a deductible

amount equal to the insurable value of the property to avoid the mandatory purchase requirement

for flood insurance.43 See Q&A Amount 9.

PRIVATE FLOOD COMPLIANCE 2. May a lender require that the deductible of any

flood insurance policy issued by a private insurer be lower than the maximum deductible

for an NFIP policy?

42 12 CFR 22.3(c)(3)(iv) (OCC); 12 CFR 208.25(c)(3)(iii)(D) (Board); 12 CFR 339.3(c)(3)(iv) (FDIC); 12 CFR

614.4930(c)(3)(iv) (FCA); and 12 CFR 760.3(c)(3)(iv) (NCUA).

43 12 CFR 22.3(a) (OCC); 12 CFR 208.25(c)(1) (Board); 12 CFR 339.3(a) (FDIC); 12 CFR 614.4930(a) (FCA); and

12 CFR 760.3(a) (NCUA).

imum deductible

for an NFIP policy?

42 12 CFR 22.3(c)(3)(iv) (OCC); 12 CFR 208.25(c)(3)(iii)(D) (Board); 12 CFR 339.3(c)(3)(iv) (FDIC); 12 CFR

614.4930(c)(3)(iv) (FCA); and 12 CFR 760.3(c)(3)(iv) (NCUA).

43 12 CFR 22.3(a) (OCC); 12 CFR 208.25(c)(1) (Board); 12 CFR 339.3(a) (FDIC); 12 CFR 614.4930(a) (FCA); and

12 CFR 760.3(a) (NCUA).

Yes. If the lender is accepting the private flood insurance policy under the mandatory

acceptance provision, the Regulation requires that the private flood insurance policy be at least

as broad as an NFIP policy, which includes a requirement that the private flood insurance policy

contain a deductible no higher than the specified maximum deductible for a Standard Flood

Insurance Policy (SFIP).44 The lender may require a borrower’s private flood insurance policy

deductible be lower than the maximum deductible for an NFIP policy in connection with a policy

that the lender accepts under the mandatory acceptance provision, consistent with general safety

and soundness principles and based on a borrower’s financial condition, among other factors.

If the lender is accepting a flood insurance policy issued by a private insurer under the

discretionary acceptance provision, the lender need only consider whether the policy, including

the stated deductible, provides sufficient protection of the loan, consistent with general safety

and soundness principles.45 See also Q&A Private Flood Compliance 1.

PRIVATE FLOOD COMPLIANCE 3. If a lender utilizes a third party to review flood

insurance policies, would it be permissible for a lender to charge the borrower a fee for this

review?

The Act and the Regulation do not prohibit lenders from charging fees to borrowers for

contracting with third parties to review flood insurance policies. As explained in Q&A Fees 1

and Q&A Fees 2, lenders may charge limited, reasonable fees for flood determinations and life-

of-loan monitoring

surance policies, would it be permissible for a lender to charge the borrower a fee for this

review?

The Act and the Regulation do not prohibit lenders from charging fees to borrowers for

contracting with third parties to review flood insurance policies. As explained in Q&A Fees 1

and Q&A Fees 2, lenders may charge limited, reasonable fees for flood determinations and life-

of-loan monitoring. Similarly, the Act and the Regulation do not prohibit lenders from charging

a fee to a borrower when a third party reviews a flood insurance policy issued by a private

44 12 CFR 22.2(k)(2)(iii) (OCC); 12 CFR 208.25(b)(9)(ii)(B) (Board); 12 CFR 339.2 (FDIC); 12 CFR 614.4925

(FCA); and 12 CFR 760.2 (NCUA).

45 12 CFR 22.3(c)(3)(iv)(D) (OCC); 12 CFR 208.25(c)(3)(iii)(D) (Board); 12 CFR 339.3(c)(3)(iv) (FDIC); 12 CFR

614.4930(c)(3)(iv) (FCA); and 12 CFR 760.3(c)(3)(iv) (NCUA).

insurer. However, lenders should be aware of any other applicable requirements regarding fees

and disclosures of fees.

PRIVATE FLOOD COMPLIANCE 4. If the policy is not available prior to closing, what

can the lender rely on to make sure the policy meets the requirements of the Regulation?

The Act and Regulation do not specify the acceptable types of documentation for a lender

to rely on when reviewing a flood insurance policy issued by a private insurer. Lenders should

determine whether they have sufficient evidence to show the policy meets the requirements

under the Regulation.

Lenders can take steps to help mitigate against closing delays such as designating

employees responsible for reviewing flood policies, training employees, and requesting

additional information from insurers early in the process. If the lender does not have enough

information to determine if the policy meets the private flood insurance requirements under the

Regulation, then the lender should timely request additional information as necessary to

complete its review

ignating

employees responsible for reviewing flood policies, training employees, and requesting

additional information from insurers early in the process. If the lender does not have enough

information to determine if the policy meets the private flood insurance requirements under the

Regulation, then the lender should timely request additional information as necessary to

complete its review.

PRIVATE FLOOD COMPLIANCE 5. Under existing force placement requirements, a

declarations page is sufficient to evidence a borrower’s purchase of a flood insurance

policy. Does the declarations page have sufficient information for a lender to determine

whether the policy complies with the Regulation?

It depends. If the declarations page provides enough information for the lender to

determine whether the policy meets the mandatory acceptance provision or discretionary

acceptance provision of the Regulation or if the declarations pages contains the compliance aid

assurance clause, then the lender may rely on the declarations pages. However, if the

declarations page does not provide enough information for the lender to determine whether the

policy satisfies the mandatory acceptance provision or discretionary acceptance provision of the

Regulation, the lender should request additional information about the policy to aid in making its

determination.

PRIVATE FLOOD COMPLIANCE 6. May a lender accept a multiple-peril policy issued

by a private insurer to satisfy the mandatory purchase of flood insurance requirement?

Yes. A lender can accept a multiple-peril policy that covers the hazard of flood under the

private flood insurance provisions of the Regulation, provided the policy meets the requirements

under the Regulation.

PRIVATE FLOOD COMPLIANCE 7

LOOD COMPLIANCE 6. May a lender accept a multiple-peril policy issued

by a private insurer to satisfy the mandatory purchase of flood insurance requirement?

Yes. A lender can accept a multiple-peril policy that covers the hazard of flood under the

private flood insurance provisions of the Regulation, provided the policy meets the requirements

under the Regulation.

PRIVATE FLOOD COMPLIANCE 7. How do the private flood insurance requirements

of the Regulation, especially the compliance aid assurance clause, work in conjunction with

the requirements from secondary market investors (for example, the Federal National

Mortgage Association (Fannie Mae) or the Federal Home Loan Mortgage Corporation

(Freddie Mac))?

Lenders must comply with Federal flood insurance requirements. The requirements for

the secondary market are separate from the Regulation. A lender should carefully review these

separate requirements for secondary market investors regarding acceptable private flood

insurance if the lender plans to sell loans to such investors and should direct questions regarding

these requirements to the appropriate entities.

PRIVATE FLOOD COMPLIANCE 8. When servicing a loan covered by flood insurance

pursuant to the Act and the Regulation, which requirements must a servicer follow in

evaluating the acceptance of a flood insurance policy issued by a private insurer?

For loans serviced on behalf of lenders supervised by the Agencies, the servicer must

comply with the Regulation in determining whether a flood insurance policy issued by a private

insurer must be accepted under the mandatory acceptance provision or may be accepted under

the discretionary acceptance provision or mutual aid provision. For loans serviced on behalf of

other entities not supervised by the Agencies, the servicer should comply with the terms of its

contract with that entity

ith the Regulation in determining whether a flood insurance policy issued by a private

insurer must be accepted under the mandatory acceptance provision or may be accepted under

the discretionary acceptance provision or mutual aid provision. For loans serviced on behalf of

other entities not supervised by the Agencies, the servicer should comply with the terms of its

contract with that entity. For example, when servicing loans on behalf of Fannie Mae or Freddie

Mac, where there are insurer rating requirements specified within those entities’ servicing

guidance or other relevant authorities that are not required in the Regulation, the servicer should

adhere to those servicing requirements.

PRIVATE FLOOD COMPLIANCE 9. How can a lender determine: (i) whether an insurer

is licensed or admitted in a particular State, (ii) or whether a surplus lines or nonadmitted

alien insurer is permitted to issue an insurance policy in a particular State?

A lender may refer to the website of the State insurance regulator where the collateral

property is located to determine whether a particular insurer is licensed, admitted, or otherwise

permitted to issue an insurance policy in a particular State. If the lender cannot determine this

information from the website, the lender could contact the State insurance regulator directly.

Further, information with respect to surplus lines insurer eligibility also may be available in the

Consumer Insurance Search (CIS) tool available on the National Association of Insurance

Commissioners (NAIC) website. Lenders may consult commercial service providers regarding

the eligibility of surplus lines insurers in particular States provided the lenders have a reasonable

basis to believe that these service providers have reliable information.

r eligibility also may be available in the

Consumer Insurance Search (CIS) tool available on the National Association of Insurance

Commissioners (NAIC) website. Lenders may consult commercial service providers regarding

the eligibility of surplus lines insurers in particular States provided the lenders have a reasonable

basis to believe that these service providers have reliable information.

With regard to nonadmitted alien insurers in particular, lenders could review the NAIC’s

Quarterly Listing of Alien Insurers.46

PRIVATE FLOOD COMPLIANCE 10. May lenders accept policies issued by private

insurers that are surplus lines insurers for noncommercial residential properties?

Yes, if the surplus lines insurer is eligible or not disapproved to place insurance in the

State or jurisdiction in which the property to be insured is located, lenders may accept policies

issued by surplus lines insurers as coverage for noncommercial (i.e., residential) properties.

Consistent with the Act and the Regulation, the Agencies confirm that policies issued by

surplus lines insurers for noncommercial properties are covered in the definition of “private

flood insurance” and in the discretionary acceptance provision. In the definition of “private

flood insurance,” surplus lines policies for noncommercial properties are covered as policies that

are issued by insurance companies that are “otherwise approved to engage in the business of

insurance by the insurance regulator of the State or jurisdiction in which the property to be

insured is located.”47 Similarly, within the discretionary acceptance provision, noncommercial

residential policies issued by surplus lines carriers are covered as policies that are issued by

private insurance companies that are “otherwise approved to engage in the business of insurance

by the insurance regulator of the State or jurisdiction in which the property to be insured is

located.”48

For purposes of the Regulation, the meaning of “otherwise approved” is based on

whet

mmercial

residential policies issued by surplus lines carriers are covered as policies that are issued by

private insurance companies that are “otherwise approved to engage in the business of insurance

by the insurance regulator of the State or jurisdiction in which the property to be insured is

located.”48

For purposes of the Regulation, the meaning of “otherwise approved” is based on

whether applicable State law provides that the surplus lines insurer is eligible or not disapproved

46 See 15 U.S.C. 8204.

47 See 84 FR 4955-4956 (Feb.20, 2019). See also 12 CFR 22.2(k)(1)(i) (OCC); 12 CFR 208.25(b)(9)(i)(A) (Board);

12 CFR 339.2 (FDIC); 12 CFR 614.4925 (FCA); and 12 CFR 760.2 (NCUA).

48 See 84 FR 4962 (Feb. 20, 2019). See also 12 CFR 22.3(c)(3)(ii) (OCC); 12 CFR 208.25(c)(3)(iii)(B) (Board); 12

CFR 339.3(c)(3)(ii) (FDIC); 12 CFR 614.4930(c)(3)(ii) (FCA); and 12 CFR 760.3(c)(3)(ii) (NCUA).

to place insurance in that State. Even if the surplus lines insurer is not considered to be engaged

in the business of insurance under applicable State law, the surplus lines insurer would still be

“otherwise approved” only for purposes of this provision of the Regulation if the insurer is

eligible or not disapproved to place insurance in the State.

PRIVATE FLOOD COMPLIANCE 11. May a lender accept a private flood insurance

policy that includes a compliance aid assurance clause, but also includes a disclaimer

explaining that the “insurer is not licensed in the State or jurisdiction in which the

property is located,” which suggests that the policy is issued by a surplus lines insurer?

Even if the policy includes a statement indicating that the insurer is not licensed in the

State or jurisdiction in which the property is located, suggesting that the policy is issued by a

surplus lines insurer, there are circumstances under which lenders may accept the policy

r jurisdiction in which the

property is located,” which suggests that the policy is issued by a surplus lines insurer?

Even if the policy includes a statement indicating that the insurer is not licensed in the

State or jurisdiction in which the property is located, suggesting that the policy is issued by a

surplus lines insurer, there are circumstances under which lenders may accept the policy. A

lender may accept a policy issued by a surplus lines insurer recognized or not disapproved by the

relevant State insurance regulator as protection for loan collateral that is a commercial property.

Also, a lender may accept a policy issued by a surplus lines insurer as protection for loan

collateral that is a noncommercial property as a policy issued by an insurance company that is

“otherwise approved to engage in the business of insurance by the insurance regulator of the

State or jurisdiction in which the property to be insured is located.” See Q&A Private Flood

Compliance 10.

Blake J. Paulson,

Acting Comptroller of the Currency.

Ann Misback,

Secretary of the Board.

Federal Deposit Insurance Corporation.

Dated at Washington, DC, on or about January 12, 2021.

James P. Sheesley,

Assistant Executive Secretary.

Dated at McLean, VA, this 1st day of March 2021.

Dale Aultman,

Secretary,

Farm Credit Administration Board.

Melane Conyers-Ausbrooks, Secretary of the Board,

National Credit Union Administration.

[BILLING CODES: 4810-33-P; 6210-01-P; 6714-01-P; 7535-01-P; 6705-01-P]

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.