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As the federal financial regulators – including the NCUA – work to update flood insurance Q&As in an effort to reduce lenders' compliance burden under federal flood insurance laws, NAFCU has identified additional areas that need to be addressed to provide more clarity and limit potential negative effects on credit unions and consumers.

The Q&As have not been updated since 2011. The proposed rule would reorganize, revise, and expand the Q&As on issues related to the escrow of flood insurance premiums, force placement of flood insurance, the detached structures exemption, and more.

NAFCU Senior Regulatory Counsel Elizabeth LaBerge, in a letter Monday, said "credit unions are supportive of the certainty and regulatory flexibility afforded by many of the new and updated Interagency Questions and Answers." However, she noted several areas that could use improvements, including:

• Exemptions: LaBerge noted that Exemptions 4, 5, and 7 provide important clarifications, but Exemption 1 could be improved by "more strongly emphasizing that credit unions must make 'good faith determinations' of the use of a structure, and perhaps provide an example of such a good faith determination to assist credit unions in confidently documenting determinations in their files." In addition, LaBerge said while Exemption 2 provides important guidance, it is difficult to read and understand. She recommended separating it into two Q&As.
• Coverage: Under Coverage 1, which provides factors that a credit union can consider in determining whether a private flood insurance policy provides "sufficient protection of the designated loan," LaBerge said it would be more helpful to also include context or indication that these factors are used in determining whether a credit union is permitted to accept the private insurance policy at its own discretion.
• Amount: "Especially in light of the pandemic, it may be important to consider how credit unions should determine coverage amounts without the use of a full appraisal that provides the value of the land separate and apart from the value of the building," LaBerge wrote.
• Construction: LaBerge highlighted several issues with Construction 3 as written, and offered suggestions to further "clarify that it is describing when construction is covered against loss by an [National Flood Insurance Program (NFIP)] policy which is in place," as well as that coverage ceases on day 91 of halted construction.
• Escrow: LaBerge said that, as written, Escrow 4 is confusing as its answer "is constructed around the existence of a triggering event, which does not make it clear what certain exceptions might apply to situations involving assumptions of remapping."

In addition, LaBerge flagged a conflict between the proposed Q&As and the Federal Housing Agency's (FHA) guidelines related to mandatory acceptance of private flood insurance policies. Read LaBerge's full letter and recommendations here.

NAFCU will continue to work with the NCUA to ensure credit unions' concerns related to these flood insurance Q&As are addressed.