Q: DISCRETIONARY 4. What are some factors to consider when determining whether a flood insurance policy issued by a private insurer under the discretionary acceptance provision or a mutual aid plan provides sufficient protection of a loan secured by improved real property located in an SFHA, consistent with general safety and soundness principles?
A: Some factors, among others, that a lender could consider in determining whether a policy provides sufficient protection of a loan include whether:
(1) a policy’s deductible is reasonable based on the borrower’s financial condition;
(2) the insurer provides adequate notice of cancellation to the mortgagor and mortgagee to allow for timely force placement of flood insurance, if necessary;
(3) the terms and conditions of the policy, with respect to payment per occurrence or per loss and aggregate limits, are adequate to protect the regulated lending institution’s interest in the collateral;
(4) the flood insurance policy complies with applicable State insurance laws; and
(5) the private insurance company has the financial solvency, strength, and ability to satisfy claims..