Pub. 12 2021 Issue 2

www.wvbankers.org 28 West Virginia Banker T he Agencies (OCC, FRB, FDIC, FCA, and NCUA) have recently proposed revisions to the Interagency Questions and Answers Regarding Flood Insurance. The purpose of this proposal is to supplement the July 2020 proposed Q&As, which only contained two proposed questions on private flood insurance. These new proposed Q&As are formulated based on questions received by the Agencies regarding private flood insurance rules that went into effect July 1, 2019, and include 24 proposed Q&As on private flood insurance. In attempts to provide additional clarity on requirements, the proposed Q&As use the term “Act” in reference to the National Flood Insurance Act of 1968 (NFIA) and the Flood Disaster Protection Act of 1973 (FDPA), as well as “Regulation,” to refer to each Agency’s current flood insurance rule. The new proposed Q&As are divided into three main categories regarding private flood insurance: 1. Mandatory Acceptance (9 proposed Q&As) 2. Discretionary Acceptance (4 proposed Q&As) 3. General Compliance (11 proposed Q&As) So, what does this mean for financial institutions? Mandatory Acceptance Key Takeaways Anytime renewals, or when a borrower presents a new private flood insurance policy regardless of whether a MIRE event occurred (making, increasing, renewing, or extending of a loan), the lender is required to review the policy to determine if it meets the mandatory purchase criteria. If it does not, the lender may still accept the policy if it meets the discretionary acceptance criteria. If a lender has a policy to not originate mortgage loans in nonparticipating communities or coastal barrier regions where NFIP is not available, private flood insurance requirements are not going to require the lender to change its policy. Lenders are not required to accept private flood insurance policies solely because the policy contains the compliance aid assurance clause when the lender reviews it and determines the policy actually does not meet the mandatory acceptance requirements. But that does not alleviate the lender from reviewing a policy that does not contain the compliance aid assurance clause to determine whether it meets the requirements for private flood insurance before rejecting the policy. The policy must contain the compliance aid assurance clause language in the policy or an addendum before the bank accepts without conducting a review. Even if that is true, the lender must still ensure that the coverage is at least equal to the lesser of the outstanding principal balance of the loan Good Things Come to Those Who Wait: Interagency Proposed Flood Q&As By Elizabeth K. Madlem, Compliance Alliance