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Federal Register / Vol. 86, No. 51 / Thursday, March 18, 2021 / Proposed Rules Discretionary 4. If a flood insurance policy issued by a private insurer that was originally accepted in accordance with the discretionary acceptance requirements is renewed annually, is the lender required to review the policy upon renewal?
If a lender had accepted a flood insurance policy issued by a private insurer in accordance with the discretionary acceptance requirements and the policy is renewed, the lender must review the policy upon renewal to ensure that it continues to meet the discretionary acceptance requirements.39 The lender must also document its conclusion regarding sufficiency of the protection of the loan in writing upon each renewal to indicate that the policy continues to provide sufficient protection of the loan.40
III. Private Flood InsurancePrivate Flood Compliance
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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 SFIPi.e., no higher than the specified maximum under an SFIPfor 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 borrowers financial condition, among other factors. See Q&A Amount 9.
For example, if a private policy for a commercial building provided $1,000,000 of flood insurance coverage, 39 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.
40 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.
41 12 CFR 22.2k OCC; 12 CFR 208.25b9
Board; 12 CFR 339.2 FDIC; 12 CFR 614.4925
FCA; and 12 CFR 760.2 NCUA.

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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 borrowers 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 borrowers 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 policys deductible is reasonable based on the borrowers financial condition. Unlike the limitation on deductibles for policies accepted under the mandatory acceptance provision for any total coverage amount up to the maximum available under the NFIP, a lender can accept a flood insurance policy issued by a private insurer under the discretionary acceptance provision with a deductible higher than that for an SFIP for a similar type of property, provided the lender has determined the policy provides sufficient protection of the loan, consistent with general safety and soundness principles.
Whether the lender is evaluating the policy under the mandatory acceptance provision or the discretionary acceptance provision, a lender may not allow the borrower to use a deductible amount equal to the insurable value of the property to avoid the mandatory purchase requirement for flood insurance.43 See Q&A Amount 9.
42 12 CFR 22.3c3iv OCC; 12 CFR
208.25c3iiiD Board; 12 CFR 339.3c3iv FDIC; 12 CFR 614.4930c3iv FCA; and 12
CFR 760.3c3iv NCUA.
43 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.

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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 borrowers 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 borrowers financial condition, among other factors.
If the lender is accepting a flood insurance policy issued by a private insurer under the discretionary acceptance provision, the lender need only consider whether the policy, including the stated deductible, provides sufficient protection of the loan, consistent with general safety and soundness principles.45 See also Q&A
Private Flood Compliance 1.
Private Flood Compliance 3. If a lender utilizes a third party to review flood insurance policies, would it be permissible for a lender to charge the borrower a fee for this review?
The Act and the Regulation do not prohibit lenders from charging fees to borrowers for contracting with third parties to review flood insurance policies. As explained in Q&A Fees 1
and Q&A Fees 2, lenders may charge limited, reasonable fees for flood determinations and life-of-loan monitoring. 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.
44 12 CFR 22.2k2iii OCC; 12 CFR
208.25b9iiB Board; 12 CFR 339.2 FDIC; 12
CFR 614.4925 FCA; and 12 CFR 760.2 NCUA.
45 12 CFR 22.3c3ivD OCC; 12 CFR
208.25c3iiiD Board; 12 CFR 339.3c3iv FDIC; 12 CFR 614.4930c3iv FCA; and 12
CFR 760.3c3iv NCUA.

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