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

Published date18 March 2021
Citation86 FR 14696
Record Number2021-05314
SectionProposed rules
CourtFarm Credit Administration,Federal Deposit Insurance Corporation,Federal Reserve System,The Comptroller Of The Currency Office
Federal Register, Volume 86 Issue 51 (Thursday, March 18, 2021)
[Federal Register Volume 86, Number 51 (Thursday, March 18, 2021)]
                [Proposed Rules]
                [Pages 14696-14707]
                From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
                [FR Doc No: 2021-05314]
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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.
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                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 the final 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 May 17, 2021.
                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, 9 a.m.-5 p.m. ET or email
                [email protected].
                 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,
                email 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,
                9 a.m.-5 p.m. ET or email [email protected].
                 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 Website: http://www.federalreserve.gov. Follow the
                instructions for submitting comments at http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm.
                 Email: [email protected]. 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 website
                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.
                [[Page 14697]]
                 Email: [email protected]. 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.
                 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 email or through the FCA's website. 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:
                 Email: Send us an email at [email protected].
                 FCA Website: 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 website at
                http://www.fca.gov. Once you are in the website, 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. Identifying information that you provide, such
                as phone numbers and addresses, will be publicly available. However, we
                will attempt to remove email 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 [email protected] 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 [email protected].
                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.
                Thus, in participating communities, Federally-backed flood insurance is
                available for property owners in flood risk areas.
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                 \1\ Public Law 90-448, 82 Stat. 572 (1968).
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                 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 flood
                insurance regulation for the first time. The OCC, Board, FDIC, OTS,
                FCA, and NCUA \4\ fulfilled these requirements by issuing a joint final
                rule in the summer of 1996.\5\
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                 \2\ Public Law 93-234, 87 Stat. 975 (1973).
                 \3\ Title V of Public Law 103-325, 108 Stat. 2255 (1994).
                 \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).
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                 Since 1997, the Interagency Questions and Answers \6\ have provided
                the
                [[Page 14698]]
                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 rules \8\ 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 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. 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.
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                 \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\ Public Law 112-141, 126 Stat. 916 (2012).
                 \10\ Public Law 113-89, 128 Stat. 1020 (2014).
                 \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).
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                 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.
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                 \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/.
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                 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.
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                 \14\ See 85 FR 40442 (July 6, 2020).
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                 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:
                I. 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 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.
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                 \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).
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                 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
                I. 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
                insurance policies issued by a private insurer that the lender is
                required to accept because the policies meet the definition of
                ``private flood
                [[Page 14699]]
                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. 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 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.
                 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. 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.
                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.
                [[Page 14700]]
                 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 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.
                ---------------------------------------------------------------------------
                 \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).
                ---------------------------------------------------------------------------
                 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. 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 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.
                 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 9 \17\ 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.
                ---------------------------------------------------------------------------
                 \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).
                ---------------------------------------------------------------------------
                 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
                [[Page 14701]]
                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.
                ---------------------------------------------------------------------------
                 \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.
                 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. 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.
                ---------------------------------------------------------------------------
                 \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).
                ---------------------------------------------------------------------------
                 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 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.
                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.
                [[Page 14702]]
                 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.
                 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. 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 lines \20\ or nonadmitted alien insurer \21\ 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 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\
                ---------------------------------------------------------------------------
                 \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. 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.
                 \23\ See https://www.naic.org/prod_serv_alpha_listing.htm#quarterly_alien.
                ---------------------------------------------------------------------------
                 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. 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 of insurance by the
                insurance regulator of the State or jurisdiction in which the property
                to be insured is located.''
                ---------------------------------------------------------------------------
                 \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. 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).
                ---------------------------------------------------------------------------
                 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.
                 For example, under section 1776 of the California Insurance Code,
                the
                [[Page 14703]]
                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 insurer is not authorized to do business in California
                for purposes of Section 1776 of the California Insurance Code.
                ---------------------------------------------------------------------------
                 \25\ Cal. Ins. Code Sec. 1776.
                 \26\ Id.
                ---------------------------------------------------------------------------
                 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. 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. 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 4.
                ---------------------------------------------------------------------------
                 \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).
                ---------------------------------------------------------------------------
                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.
                ---------------------------------------------------------------------------
                 \32\ Public Law 93-234, 87 Stat. 975 (1973).
                ---------------------------------------------------------------------------
                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?
                 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.
                [[Page 14704]]
                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\
                ---------------------------------------------------------------------------
                 \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).
                ---------------------------------------------------------------------------
                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?
                 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\
                ---------------------------------------------------------------------------
                 \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).
                ---------------------------------------------------------------------------
                 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. 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 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.
                ---------------------------------------------------------------------------
                 \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).
                ---------------------------------------------------------------------------
                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 under the mandatory acceptance criteria.\37\
                ---------------------------------------------------------------------------
                 \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).
                ---------------------------------------------------------------------------
                 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\
                ---------------------------------------------------------------------------
                 \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).
                ---------------------------------------------------------------------------
                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 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. 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 1.
                [[Page 14705]]
                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\
                ---------------------------------------------------------------------------
                 \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).
                ---------------------------------------------------------------------------
                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?
                 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.
                ---------------------------------------------------------------------------
                 \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).
                ---------------------------------------------------------------------------
                 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. 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. 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.
                ---------------------------------------------------------------------------
                 \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).
                ---------------------------------------------------------------------------
                 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.
                ---------------------------------------------------------------------------
                 \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).
                ---------------------------------------------------------------------------
                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?
                 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.
                ---------------------------------------------------------------------------
                 \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).
                ---------------------------------------------------------------------------
                 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.
                ---------------------------------------------------------------------------
                 \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).
                ---------------------------------------------------------------------------
                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. 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 insurer. However,
                lenders should be aware of any other applicable requirements regarding
                fees and disclosures of fees.
                [[Page 14706]]
                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.
                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. 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. 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.
                 With regard to nonadmitted alien insurers in particular, lenders
                could review the NAIC's Quarterly Listing of Alien Insurers.\46\
                ---------------------------------------------------------------------------
                 \46\ See 15 U.S.C. 8204.
                ---------------------------------------------------------------------------
                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\
                ---------------------------------------------------------------------------
                 \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).
                ---------------------------------------------------------------------------
                 For purposes of the Regulation, the meaning of ``otherwise
                approved'' is
                [[Page 14707]]
                based on whether applicable State law provides that the surplus lines
                insurer is eligible or not disapproved 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. 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.
                [FR Doc. 2021-05314 Filed 3-17-21; 8:45 am]
                BILLING CODE 4810-33-P; 6210-01-P; 6714-01-P; 7535-01-P; 6705-01-P
                

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