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Federal Register / Vol. 86, No. 51 / Thursday, March 18, 2021 / Proposed Rules
jbell on DSKJLSW7X2PROD with PROPOSALS

Mandatory 5. Is a lender required to accept a flood insurance policy issued by a private insurer that includes the compliance aid assurance clause?
Conversely, may a lender reject a flood insurance policy issued by a private insurer solely because it does not contain the compliance aid assurance clause?
A lender is not required to accept a flood insurance policy issued by a private insurer solely because the policy contains the compliance aid assurance clause if the lender chooses to conduct its own review and determines the flood insurance policy actually does not meet the mandatory acceptance requirements.
If a flood insurance policy issued by a private insurer does not include the compliance aid assurance clause, the lender must still review the policy to determine if it meets the requirements for private flood insurance as set forth in the Regulation before the lender may choose to reject the policy.33
Mandatory 6. 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
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 33 12 CFR 22.3c OCC; 12 CFR 208.25c3
Board; 12 CFR 339.3c FDIC; 12 CFR 614.4930c FCA; and 12 CFR 760.3c NCUA.
34 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.

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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 borrowers name and property address. See also Q&A Mandatory 6.
Mandatory 8. If a flood insurance policy issued by a private issuer does not include a compliance aid assurance clause, can a lender use the criteria under the discretionary acceptance provision to decide whether to accept the policy without first checking to see if the policy meets the criteria under the mandatory acceptance provision?
Yes, the lender may first review the policy to determine whether it meets the criteria under the discretionary acceptance provision.36 However, even if the policy does not meet the discretionary acceptance criteria, the lender will still need to determine whether it must accept the policy under the mandatory acceptance criteria.37
Note that if the lender accepts a policy under the discretionary acceptance provision, the Regulation requires the lender to document that the policy provides sufficient protection of the loan.38
Mandatory 9. If the compliance aid assurance clause is on the declarations page, may a lender accept the policy without further review?
If the compliance aid assurance clause is included on the declarations page, a 35 12 CFR 22.3a OCC; 12 CFR 208.25c1
Board; 12 CFR 339.3a FDIC; 12 CFR 614.4930a FCA; and 12 CFR 760.3a NCUA.
36 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.
37 12 CFR 22.3c OCC; 12 CFR 208.25c3
Board; 12 CFR 339.3c FDIC; 12 CFR 614.4930c FCA; and 12 CFR 760.3c NCUA.
38 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.

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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 lenders 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 lenders conclusion following review of the policy.
Discretionary 3. How can a lender evaluate the sufficiency of an insurers 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 insurers solvency, strength, and ability to satisfy claims by obtaining information from the State insurance regulators 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.

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