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jbell on DSKJLSW7X2PROD with PROPOSALS

Federal Register / Vol. 86, No. 51 / Thursday, March 18, 2021 / Proposed Rules 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 placement 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.
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.
25 Cal.

Ins. Code 1776.

26 Id.

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Interagency Questions and Answers Regarding Private Flood Insurance I. Private Flood InsuranceMandatory 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 borrowers behalf.30
If the lender has previously reviewed the flood insurance policy under the 27 See 12 CFR 22.3c1 OCC; 12 CFR
208.25c3i Board; 12 CFR 339.3c1 FDIC;
12 CFR 614.4930c1 FCA; and 12 CFR
760.3c1 NCUA.
28 12 CFR 22.3c2 OCC; 12 CFR 208.25c3ii Board; 12 CFR 339.3c2 FDIC; 12 CFR
614.4930c2 FCA; and 12 CFR 760.3c2
NCUA.
29 12 CFR 22.7 OCC; 12 CFR 208.25g Board;
12 CFR 339.7 FDIC; 12 CFR 614.4945 FCA; and 12 CFR 760.7 NCUA.
30 12 CFR 22.7a OCC; 12 CFR 208.25g1
Board; 12 CFR 339.7a FDIC; 12 CFR 614.4945a FCA; and 12 CFR 760.7a NCUA.

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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.
Mandatory 3. If a lender has a policy not to originate a mortgage in nonparticipating 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 lenders underwriting criteria.
The Agencies note that the flood insurance purchase requirement only applies to loans secured by structures located or to be located in an SFHA in which flood insurance is available under the Act.32 As noted in Q&A
Applicability 1, the flood insurance purchase requirement does not apply within non-participating communities, where NFIP insurance is not available under the Act. Therefore, the lender does not need to change its policy of not originating mortgages in areas where NFIP insurance is unavailable solely because of the private flood insurance requirements under the Regulation.
Mandatory 4. Did the Agencies intend the compliance aid assurance clause to act as a conformity clause that would make a private policy conform to the definition of private flood insurance?
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.

31 12 CFR 22.3c3 OCC; 12 CFR
208.25c3iii Board; 12 CFR 339.3c3 FDIC;
12 CFR 614.4930c3 FCA; and 12 CFR
760.3c3 NCUA.
32 Public Law 93234, 87 Stat. 975 1973.

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