How are other banks reviewing and documenting whether the deductible makes sense from a safety and soundness perspective?

The same way that you would if it was an NFIP policy or any other hazard insurance policy that you might require. Unequal application of allowable insurance deductibles would be a fair lending issue.

Need some clarification on Private Flood Insurance when it does not contain the "Compliance Aid Statement" or does not provide coverage as broad as the coverage under NFIP. I have been asked that when we receive a policy that does not contain the above, can we ask for additional insurance coverage?

Additional or different? Not sure what additional coverage is going to do for you. Does it meet the discretionary acceptance criteria?

Also, I have been asked if we can deny a loan due to the private insurance policy that would fall under discretionary acceptance?

Yes

rlclarey - Yes, it would fall under the discretionary acceptance criteria.

Okay, good to know. Thank you!

If it has been our policy to accept private flood insurance policies, can we skip mandatory acceptance requirements and go directly to discretionary acceptance requirements?

Not really as if it meets the requirements under mandatory acceptance, you must accept it.

Sure you could. If you accept it. If you deny it, then you have to make sure it doesn't meet the mandatory acceptance requirements.

I had an FDIC rep at the BOL Lending Triage Conference who helped write the rules tell me after my flood presentation that a lender does not have to do the mandatory acceptance test and they could move directly to the discretionary test.

While I did not disagree, I did point out the fact that one of the discretionary requirements remained:

Provides sufficient protection of the designated loan, consistent with general safety and soundness principles, and the member bank documents its conclusion regarding sufficiency of the protection of the loan in writing.

Who wants to do this write up and prove it all in a manner that would be acceptable to an auditor or examiner on every private policy that does not contain the Compliance Statement?

I think I would rather do the mandatory acceptance test.