Q: If a private flood insurance policy does not contain the compliance aid assurance clause, can a lender immediately use the criteria under the discretionary acceptance provision to decide whether to accept or reject the policy without first checking to see if the policy meets the criteria under the mandatory acceptance provisions?
A: That's a good question and the answer would be yes. A lender may choose to first evaluate a policy under the discretionary acceptance criteria in order to determine whether to accept a policy. However, if the lender makes a determination that the policy does not meet the discretionary acceptance criteria, the lender must determine whether the policy meets the mandatory acceptance criteria before making a determination about whether or not to accept the policy.
Just to remind everyone that if the lender uses the discretionary acceptance criteria, the regulation requires the lender to document its analysis on whether the policy provides sufficient protection of the loan.
This Q&A was part of the discussion in the Outlook Live – 2019 Interagency Flood Insurance Update on Private Flood Insurance Rule webinar held on 6/18/19 and focused on the new private flood insurance rules that become effective 7/1/19. Information may be found here: https://www.webcaster4.com/Webcast/Page/577/30085