Chapter 5
| Section 501 | |
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| 501.01A | |
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Guidance
When terms or acronyms for insurance forms and policies are capitalized in this Chapter, they refer to Insurance Services Office (ISO) forms and policies or their equivalent. Other capitalized terms and acronyms have standard insurance industry meanings.
Requirements
As of the Mortgage Loan Origination DateMortgage Loan Origination DateDate you fund a Mortgage Loan to the Borrower. , you must ensure each PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). is covered by compliant property insurance and liability insurance.
You must ensure all insurance policies:
- list the BorrowerBorrowerPerson who is the obligor per the Note. as a named insured;
- are written on an Occurrence-Based Policy, except the following, which may be written on an Occurrence-Based Policy or a Claims-Made Policy:
- earthquake insurance;
- directors' and officers' insurance;
- professional liability insurance; and
- general liability insurance for Seniors Housing PropertiesSeniors Housing PropertiesMultifamily residential rental property with any combination of Independent Living, Assisted Living, Alzheimer’s/Dementia Care, or Skilled Nursing units. only when combined with professional liability insurance;
- unless the Loan DocumentsLoan DocumentsAll Fannie Mae-approved documents evidencing, securing, or guaranteeing the Mortgage Loan.
expressly state otherwise, require the carrier to notify the named Mortgagee and/or Additional Insured in writing
- at least 10 days before policy cancellation for non-payment of premium, and
- 30 days before cancellation for any other reason;
- except for professional liability insurance, name:
- Fannie Mae as Additional Insured on
- general liability insurance, and
- excess/umbrella insurance; and
- "Fannie Mae, its successors, and assigns" as Mortgagee and Loss Payee on property insurance; and
- Fannie Mae as Additional Insured on
- use Replacement Cost Basis; however, coverage for roofs may use
- Actual Cash Basis, or
- Replacement Cost Basis.
Guidance
You should:
- obtain the advance cancellation notice for the benefit of each Mortgagee and Additional Insured from the insurance carriers whenever possible; or
- if the insurer will not provide advance cancellation notices, ensure the Loan DocumentsLoan DocumentsAll Fannie Mae-approved documents evidencing, securing, or guaranteeing the Mortgage Loan.
were not modified in any manner limiting:
- the Borrower’sBorrower’sPerson who is the obligor per the Note. obligation to promptly inform you of any notice of cancellation it receives from an insurance carrier; or
- any recourse liability of the BorrowerBorrowerPerson who is the obligor per the Note.
or any GuarantorGuarantorKey Principal or other Person executing a
Payment Guaranty,
Non-Recourse Guaranty, or
any other Mortgage Loan guaranty.
for failing to maintain all insurance coverages required by the
- Loan DocumentsLoan DocumentsAll Fannie Mae-approved documents evidencing, securing, or guaranteeing the Mortgage Loan. , and
- GuideGuideMultifamily Selling and Servicing Guide controlling all Lender and Servicer requirements unless a Lender Contract specifies otherwise. .
When a PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). management company provides insurance, you should confirm the BorrowerBorrowerPerson who is the obligor per the Note. is listed as an Additional Named Insured on the applicable policies.
An acceptable mortgagee clause is:
Fannie Mae, its successors and/or assigns, as their interest may appear
c/o [Lender Name]
Lender’s Street Address or PO Box
Lender’s City, State and Zip Code
If the insurer will not provide advance cancellation notices, your Servicing FileServicing FileYour file for each Mortgage Loan serviced. must include
- evidence of your attempts to obtain the notice provisions, and
- a copy of the state statute regarding cancelation notification.
| 501.01B | |
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Requirements
You must use reliable sources to determine estimated Insurable ValueInsurable ValueFor any Property, the estimate of the maximum dollar amount needed to replace, repair, or reproduce the Property, but excluding any land value. .
Guidance
| Common Reliable Sources to Determine Estimated Insurable Value | |
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| Resource | Description |
| Insurance Company Estimate | An estimate from the insurance company underwriting the property damage insurance. |
| Appraisal's Insurable Value | A qualified commercial real estate AppraisalAppraisalWritten statement independently and impartially prepared by a qualified Appraiser stating an opinion of the Property's market value as of a specific date, and supported by the presentation and analysis of relevant market information. from an AppraiserAppraiserPerson engaged to estimate a Property’s market value per USPAP. experienced in the market per Part II, Chapter 2: Valuation and Income, Section 202: Appraisal and Valuation. |
| Contractor | A reputable commercial contractor with experience constructing and/or reconstructing similar area properties. |
| Vendor |
A third-party vendor who
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Requirements
You must ensure:
- any Blanket PolicyBlanket PolicyInsurance policy providing coverage for multiple properties and/or multiple perils. coverage is as good as, or better than, a single property insurance policy; and
- the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the
fee simple or Leasehold interest,
Improvements, and
personal property (per the Uniform Commercial Code).
is listed and identified in the
- policy, or
- associated schedules.
Guidance
A Schedule of Values is a list of insurable values (all elements of the Total Insurable ValueTotal Insurable ValueFor any Property, the sum of the full value of the insured's: covered Property; Property-related business income values; and any other covered Property interests. ) the BorrowerBorrowerPerson who is the obligor per the Note. provides to an insurance company for all properties covered under a property insurance policy.
You should:
- review and analyze the Schedule of Values and geographical concentration and/or aggregated values of PropertiesPropertiesMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). /Total Insurable ValuesTotal Insurable ValuesFor any Property, the sum of the full value of the insured's: covered Property; Property-related business income values; and any other covered Property interests. under the Blanket PolicyBlanket PolicyInsurance policy providing coverage for multiple properties and/or multiple perils. ; and.
- confirm that Blanket Insurance Limits:
- are limited to a 1 per occurrence shared limit for:
- more than 1 property;
- more than 1 category of coverage; or
- both;
- will be reinstated to the pre-loss limits after a casualty; and
- are sufficient to cover the largest Total Insurable ValueTotal Insurable ValueFor any Property, the sum of the full value of the insured's: covered Property; Property-related business income values; and any other covered Property interests. .
- are limited to a 1 per occurrence shared limit for:
You must
- clearly document your analysis of any Blanket PolicyBlanket PolicyInsurance policy providing coverage for multiple properties and/or multiple perils. (related or unrelated entities) in your Servicing FileServicing FileYour file for each Mortgage Loan serviced. , and
- include supported conclusions.
Requirements
You must ensure any Risk Retention GroupRisk Retention GroupState-chartered insurance company created by the 1986 federal Liability Risk Retention Act, insuring commercial businesses and government entities against liability risks. or Captive InsurerCaptive InsurerInsurance company wholly owned and controlled by its insureds, whose primary purpose is to insure the risks of its owners, and its insureds benefit from the captive insurer's underwriting profits. has a rating of at least A- / VII from A.M. Best Company.
For any Risk Retention GroupRisk Retention GroupState-chartered insurance company created by the 1986 federal Liability Risk Retention Act, insuring commercial businesses and government entities against liability risks. or Captive InsurerCaptive InsurerInsurance company wholly owned and controlled by its insureds, whose primary purpose is to insure the risks of its owners, and its insureds benefit from the captive insurer's underwriting profits. that is not satisfactorily rated, before Rate LockRate LockAgreement between you and the Investor containing the terms of the Lender-Arranged Sale or Multifamily Trading Desk trade of the Mortgage Loan and the MBS terms and conditions relating to the underlying MBS, if applicable, which may be documented via a recorded telephone conversation. , you must:
- obtain and review the applicable information in the Unrated Risk Retention Group or Captive Insurer table; and
- submit a
- written summary, and
- recommendation for approval, explaining
- any non-compliant requirements,
- any adverse findings, and
- your rationale for recommending approval.
| Unrated Risk Retention Group or Captive Insurer | |
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| Document/Entity | Description |
| Certificate of Authority (CA) |
State-issued license to an insurance company to conduct business, and includes the
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| State Examination Report |
Report covering a specific timeframe that:
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| Actuarial Report |
Report culminating with a statement of actuarial opinion (minimum requirement) after evaluating, opining, and certifying the adequacy of the Captive Insurer'sCaptive Insurer'sInsurance company wholly owned and controlled by its insureds, whose primary purpose is to insure the risks of its owners, and its insureds benefit from the captive insurer's underwriting profits.
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| Loss History | Frequency and severity of insurance losses covered by the Captive Insurer'sCaptive Insurer'sInsurance company wholly owned and controlled by its insureds, whose primary purpose is to insure the risks of its owners, and its insureds benefit from the captive insurer's underwriting profits. policy during a specific timeframe. |
| Reinsurance and/or Fronting Company |
Reinsurance is when an insurer transfers all or part of a risk to another insurer to reduce the risk for the first insurance.
Fronting company is using a licensed, admitted insurer to issue an insurance policy on behalf of a self-insured organization or Captive InsurerCaptive InsurerInsurance company wholly owned and controlled by its insureds, whose primary purpose is to insure the risks of its owners, and its insureds benefit from the captive insurer's underwriting profits. without intending to transfer any of the risk. The risk of loss is retained by the self-insured or Captive InsurerCaptive InsurerInsurance company wholly owned and controlled by its insureds, whose primary purpose is to insure the risks of its owners, and its insureds benefit from the captive insurer's underwriting profits. with an indemnity or reinsurance agreement. |
| Captive Insurer |
Captive InsurerCaptive InsurerInsurance company wholly owned and controlled by its insureds, whose primary purpose is to insure the risks of its owners, and its insureds benefit from the captive insurer's underwriting profits. is either a:
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Guidance
Captive InsurersCaptive InsurersInsurance company wholly owned and controlled by its insureds, whose primary purpose is to insure the risks of its owners, and its insureds benefit from the captive insurer's underwriting profits. (and similar arrangements):
- may have lower capitalization requirements than traditional insurance companies; and
- are not usually rated by a recognized rating agency.
For Captive InsurersCaptive InsurersInsurance company wholly owned and controlled by its insureds, whose primary purpose is to insure the risks of its owners, and its insureds benefit from the captive insurer's underwriting profits. , you should:
- confirm they
- are financially stable, and
- have adequate funds to cover potential losses; and
- review additional documents as warranted.
Operating Procedures
You must submit all documents for unrated Captive InsurersCaptive InsurersInsurance company wholly owned and controlled by its insureds, whose primary purpose is to insure the risks of its owners, and its insureds benefit from the captive insurer's underwriting profits. or Risk Retention GroupsRisk Retention GroupsState-chartered insurance company created by the 1986 federal Liability Risk Retention Act, insuring commercial businesses and government entities against liability risks. :
- through DUS GatewayDUS GatewayMultifamily pre-acquisition system, or any successor systems, recording deal registration, Pre-Review and/or waiver tracking, Mortgage Loan Commitments, and decision records. , for new Mortgage LoanMortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents, or a mortgage debt obligation with a Fannie Mae credit enhancement. submissions; and
- annually through the MAMPMAMPMultifamily Asset Management Portal used to submit Property inspections, operating statements, requested modifications, asset management reports, and data corrections for loan or property attributes. , for Portfolio Mortgage LoansPortfolio Mortgage LoansMortgage Loan purchased by Fannie Mae and held as of a certain date regardless of whether it is a Cash Mortgage Loan or an MBS Mortgage Loan. .
| 501.01E | |
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Requirements
Rating requirements do not apply to policies issued
- through State-sponsored insurance programs, or
- by insurers participating in NFIPNFIPProgram of flood insurance coverage and floodplain management administered under the National Flood Insurance Act. .
For a new policy, you must ensure the insurance carrier has an A.M. Best Company
- general policyholder rating of A- or better, and
- financial size category of VII or better.
Guidance
A new policy is one that is
- not already in force, and
- most common for an AcquisitionAcquisitionAny Purchase of either the: Property’s fee simple or leasehold interest via a deed transfer; or Controlling Interest in the Borrower. .
An existing policy is
- most common for a refinance, or
- when the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). is added to a Borrower'sBorrower'sPerson who is the obligor per the Note. already-in-place policy.
| 501.01F | |
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Guidance
Policies should have a term of at least 12 months. For new Mortgage LoansMortgage LoansMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents, or a mortgage debt obligation with a Fannie Mae credit enhancement. , a PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). may be added mid-term to an existing 12-month policy.
You may accept a policy term of less than 12 months if the:
- shorter term is due to carrier
- non-renewal, or
- cancellation; or
- policy is
- expiring, and
- will be renewed for at least 12 months.
| 501.01G | |
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Requirements
You must:
- ensure premiums for all required insurance policies are either:
- paid in full annually; or
- payable in installments, for which you have receipts confirming timely payment;
- not provide premium financing to the BorrowerBorrowerPerson who is the obligor per the Note. ; and
- only permit third-party premium financing if:
- the financing agreement:
- has no negative impact on
- you,
- Fannie Mae, or
- the Mortgage LoanMortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents, or a mortgage debt obligation with a Fannie Mae credit enhancement. collateral; and
- does not include any conditions that could prevent you or Fannie Mae from receiving the insurance proceeds; and
- has no negative impact on
- the Modifications to Multifamily Loan and Security Agreement (Financing of Insurance Premiums) (Form 6272) was executed.
- the financing agreement:
If the BorrowerBorrowerPerson who is the obligor per the Note. finances premiums, you must
- review the financing agreement,
- confirm timely payment of each premium was made, and
- retain in the Servicing file
- the financing agreement, and
- evidence of premium payments.
| 501.01H | |
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Requirements
You must have:
- temporary or permanent evidence of insurance when the Mortgage LoanMortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents, or a mortgage debt obligation with a Fannie Mae credit enhancement. closes; and
- permanent evidence of insurance within 90 days after Mortgage LoanMortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents, or a mortgage debt obligation with a Fannie Mae credit enhancement. DeliveryDeliverySubmission of all correct, accurate, and certifiable documents, data, and information with all applicable documents properly completed, executed, and recorded as needed, and any deficiencies resolved to Fannie Mae’s satisfaction. .
Guidance
| Acceptable Evidence of Insurance | |
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| Acceptable Temporary Evidence Forms | Acceptable Permanent Evidence Forms |
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The following are not acceptable forms of permanent evidence:
- insurance policy declarations pages (except for an NFIPNFIPProgram of flood insurance coverage and floodplain management administered under the National Flood Insurance Act. policy);
- single policy endorsement;
- insurance binders; and
- certificates of insurance.
| 501.01I | |
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Requirements
Post-closing exception request submissions must include current information.
All exceptions, including those delegated, must be documented in the applicable business application.
You must submit any insurance exception request:
- through DUS GatewayDUS GatewayMultifamily pre-acquisition system, or any successor systems, recording deal registration, Pre-Review and/or waiver tracking, Mortgage Loan Commitments, and decision records. with all applicable data fields completed in the system, not via an attached waiver document;
- at least 72 hours before Rate LockRate LockAgreement between you and the Investor containing the terms of the Lender-Arranged Sale or Multifamily Trading Desk trade of the Mortgage Loan and the MBS terms and conditions relating to the underlying MBS, if applicable, which may be documented via a recorded telephone conversation. ; and
- with all supporting documentation.
Guidance
If the waiver is approved for the entire Mortgage LoanMortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents, or a mortgage debt obligation with a Fannie Mae credit enhancement. term, it will be stated in the approval.
| 501.02 | |
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| 501.02A | |
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Requirements
You must ensure:
- each PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). has property insurance throughout the Mortgage LoanMortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents, or a mortgage debt obligation with a Fannie Mae credit enhancement. term; and
- the coverage is:
- written using Special Peril Coverage;
- at least
- 100% of estimated Insurable ValueInsurable ValueFor any Property, the estimate of the maximum dollar amount needed to replace, repair, or reproduce the Property, but excluding any land value. for a single-building PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). , and
- 90% of estimated Insurable ValueInsurable ValueFor any Property, the estimate of the maximum dollar amount needed to replace, repair, or reproduce the Property, but excluding any land value. for a multiple-building PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). ; and
- equal to 100% of the current Insurable ValueInsurable ValueFor any Property, the estimate of the maximum dollar amount needed to replace, repair, or reproduce the Property, but excluding any land value. if any level of coinsurance is permitted.
Guidance
A margin clause:
- should not be used to determine compliant property insurance limits; and
- may contain provisions limiting additional coverage availability.
A Property Damage Insurance policy should contain an Inflation Guard endorsement that annually adjusts the insurance amount based on the inflation rate in the Property’sProperty’sMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). geographic area.
| 501.02B | |
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Requirements
The maximum deductible amounts:
- apply to all insurance coverages required by:
- must comply with the following tables.
| Maximum Deductibles | |
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| For the peril of... | The maximum deductible must not exceed... |
| Wind/Hail (unrelated to a catastrophic peril) |
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| Named Storm |
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| Maximum Deductibles for All Other Perils | |
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| Specific Limit Insurance Policy | |
| For Policies... | The maximum deductible amount per occurrence based on the Total Insurable Value is... |
| Less than $10 million | $50,000 |
| $10 million or more | $100,000 |
| Blanket Deductibles | |
| For Blanket Policies with a... | The maximum deductible amount per occurrence is... |
| Blanket limit | $250,000 |
| Specific limit |
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| Expanded Deductibles1 | |
| For Policies other than NFIP... | The maximum deductible amount per occurrence based on the Total Insurable Value is... |
| Less than $10 million | $100,000 |
| $10 million or more | $150,000 |
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1 Expanded deductibles must meet all the following:
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Guidance
Before accepting any deductibles, you should:
- assess the Borrower’sBorrower’sPerson who is the obligor per the Note. ability to pay the deductible throughout the policy term;
- determine the high deductible financial exposure by considering total paid expenses rather than only the difference between the
- maximum allowable deductible, and
- requested/actual deductible; and
- only use the Borrower’sBorrower’sPerson who is the obligor per the Note. owned or related properties to determine the maximum deductible if insurance coverage is provided on a management company’s or unrelated entities’ master property program.
| 501.02C | |
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Guidance
You may accept a Property and Liability policy that includes aggregate deductibles. The aggregate deductible may be higher than the maximum deductible required per Part II, Chapter 5: Property and Liability Insurance, Section 501.02B: Deductibles.
Requirements
If you accept a Property and Liability policy that includes aggregate deductibles, you must:
- confirm the aggregate deductible amount is fully funded and held by:
- the BorrowerBorrowerPerson who is the obligor per the Note. in a segregated bank account;
- you in the Tax and InsuranceTax and InsuranceTaxes or assessments that may become a Lien on the Property and insurance premiums. escrow; or
- a third party for the Borrower'sBorrower'sPerson who is the obligor per the Note. benefit; and
- require any claim checks to:
- list you as payee c/o Fannie Mae; and
- be considered insurance loss proceeds per the Loan DocumentsLoan DocumentsAll Fannie Mae-approved documents evidencing, securing, or guaranteeing the Mortgage Loan. .
Requirements
You must ensure:
- each PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the
fee simple or Leasehold interest,
Improvements, and
personal property (per the Uniform Commercial Code).
has business income insurance (including rental value insurance), for all required coverages, including
- ordinance or law (Coverage D),
- windstorm,
- flood,
- earthquake, and
- terrorism, etc.;
- coverage is based on:
- Actual Loss Sustained for 12 months; or
- the most recent annual reported (or annualized if annual financial are unavailable):
- EGIEGIOn an annual basis or any specified period, the total of Net Rental Income plus other income per Part II, Chapter 2: Valuation and Income, Section 203: Income Analysis and the applicable products and features in Part III. ; or
- NOINOIAnnually or for any specified period, the total Effective Gross Income minus the Property’s operating expenses. plus continuing expenses;
- the maximum deductible for business income insurance does not exceed:
- the maximum deductible for the property insurance policy, or
- a waiting period of
- 3 days, or
- 72 hours; and
- coverage for a Mortgage LoanMortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents, or a mortgage debt obligation with a Fannie Mae credit enhancement. with a UPBUPBUnpaid Principal Balance of $35 million or more includes a 90-day Extended Period of Indemnity option.
| 501.02E | |
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Requirements
If the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). is non-conforming under any current land use law or ordinance, you must ensure the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). has ordinance or law insurance:
- for all perils, even if insured on a standalone policy; and
- that includes the Increased Period of Restoration (Coverage D) endorsement if any buildings are 5 stories or more.
| Coverages | If ordinance or law insurance is required, you must ensure the Property has all of the following... |
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| Coverage A |
Loss of Undamaged Portion, in an amount equal to
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| Coverage B | Demolition/Debris Removal Cost equal to at least 10% of the Insurable ValueInsurable ValueFor any Property, the estimate of the maximum dollar amount needed to replace, repair, or reproduce the Property, but excluding any land value. . |
| Coverage C | Increased Cost of Construction equal to at least 10% of the Insurable ValueInsurable ValueFor any Property, the estimate of the maximum dollar amount needed to replace, repair, or reproduce the Property, but excluding any land value. . |
Guidance
Examples of ordinance or laws include
- bulk restrictions,
- building,
- zoning,
- energy management,
- green, or
- Fair Housing Act accessibility.
Some municipalities have no zoning districts. This primarily refers to use. Usually, buildings are still subject to building and safety codes; therefore, coverage is required.
| Required Limits Example | |
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| If... | Then the required coverage is... |
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the Insurable Value equals
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100% of the Insurable ValueInsurable ValueFor any Property, the estimate of the maximum dollar amount needed to replace, repair, or reproduce the Property, but excluding any land value. , minus the damage threshold specified by the local building ordinance (e.g., $10 million - $7.5 million = $2.5 million for Coverage A). |
| Coverages A, B, and C are combined | the Coverage A amount plus 10% of the Insurable ValueInsurable ValueFor any Property, the estimate of the maximum dollar amount needed to replace, repair, or reproduce the Property, but excluding any land value. for Coverage B plus 10% of the Insurable ValueInsurable ValueFor any Property, the estimate of the maximum dollar amount needed to replace, repair, or reproduce the Property, but excluding any land value. for Coverage C (e.g., $2.5 million + $1 million + $1 million = $4.5 million). |
| Coverages B and C are combined | 10% of the Insurable ValueInsurable ValueFor any Property, the estimate of the maximum dollar amount needed to replace, repair, or reproduce the Property, but excluding any land value. for Coverage B plus 10% of the Insurable ValueInsurable ValueFor any Property, the estimate of the maximum dollar amount needed to replace, repair, or reproduce the Property, but excluding any land value. for Coverage C (e.g., $1 million + $1 million = $2 million). |
Coverage D for law and ordinance insurance:
- extends the business:
- income and extra expense coverage; and
- additional time to restore operations when delayed due to enforcement of building or zoning laws; and
- is paid from the Property’sProperty’sMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). business income/rent loss coverage.
Without this Increased Period of Restoration endorsement, business income coverage does not include any “increased period” that may be necessary due to enforcement of an ordinance or law.
When evaluating this coverage you should ensure the business income/rent loss limit is adequate to reflect the increased period of restoration.
Requirements
You must ensure:
- a PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). with any high-pressure, centralized HVACS boiler, water heater, or other vessel in operation and regulated by the Property’sProperty’sMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). state or municipality has full equipment breakdown or boiler and machinery insurance;
- the coverage equals at least 100% of the Insurable ValueInsurable ValueFor any Property, the estimate of the maximum dollar amount needed to replace, repair, or reproduce the Property, but excluding any land value. of each building housing the equipment; and
- if equipment breakdown or boiler and machinery insurance is provided by a carrier other than the carrier providing the property damage policy, both policies include a Joint Loss AgreementJoint Loss AgreementProvision used when more than 1 insurer gives the same property coverage to temporarily allocate losses to ensure prompt payment to the policyholder. For covered losses, insurers pay the policyholder: any undisputed amounts; and all remaining sums in equal shares and insurers arbitrate….
| 501.02G | |
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Requirements
You must ensure:
- if property insurance coverage is excluded during construction or significant renovation or restoration, the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). has builder's risk insurance during such activity; and
- the coverage equals at least 100% of the completed value, on a non-reporting basis.
| 501.02H | |
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Requirements
You must ensure:
- each PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). owned by a Cooperative OrganizationCooperative OrganizationCorporation or legal entity where each shareholder or equity owner is granted the right to occupy a unit in a multifamily residential property under a proprietary lease or occupancy agreement. has fidelity bond/crime insurance in an amount covering scheduled Cooperative Maintenance FeesCooperative Maintenance FeesPeriodic fee assessed each shareholder or owner of a Cooperative Organization to fund costs and expenses associated with ongoing operations of the Cooperative Property. for at least 3 months; and
- the fidelity bond/crime insurance deductible does not exceed $25,000.
| 501.02I | |
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Requirements
You must ensure:
- if a PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). is in an area prone to geological phenomena, the property insurance coverage includes those phenomena; and
- the coverage equals 100% of the Insurable ValueInsurable ValueFor any Property, the estimate of the maximum dollar amount needed to replace, repair, or reproduce the Property, but excluding any land value. .
Guidance
Examples of geological phenomena include
- sinkhole,
- mine subsidence,
- volcanic eruption, and
- avalanche.
| Section 502 | |
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| 502.01 | |
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Requirements
You must ensure:
- a PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). has the coverages required by Part II, Chapter 5: Property and Liability Insurance, Section 502: Catastrophic Risk Insurance for perils related to catastrophic loss if the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). is in an area prone to Catastrophic EventsCatastrophic EventsNatural or man-made hazard resulting in an event of substantial extent causing significant physical damage or destruction, loss of life, or drastic change to the natural environment, such as earthquake, flood, terrorist attack, or windstorm. ;
- the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). has a separate insurance policy if the Special Peril Coverage of Loss Form excludes a Catastrophic EventCatastrophic EventNatural or man-made hazard resulting in an event of substantial extent causing significant physical damage or destruction, loss of life, or drastic change to the natural environment, such as earthquake, flood, terrorist attack, or windstorm. coverage that is required; and
- if ordinance or law coverage is required on the property policy, then coverage is obtained for catastrophic losses if the catastrophic peril is insured on a standalone policy.
| 502.02 | |
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Requirements
You must ensure:
- the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the
fee simple or Leasehold interest,
Improvements, and
personal property (per the Uniform Commercial Code).
has separate named storm insurance if the:
- Special Peril Coverage of Loss Form excludes any type of wind-related Catastrophic EventCatastrophic EventNatural or man-made hazard resulting in an event of substantial extent causing significant physical damage or destruction, loss of life, or drastic change to the natural environment, such as earthquake, flood, terrorist attack, or windstorm. ; and
- PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). is located in a TierTierTier 1, Tier 2, Tier 3, or Tier 4 per the Multifamily Underwriting Standards (Form 4660). I named storm county, as defined by the insurer;
- the coverage equals at least 90% of the Total Insurable ValueTotal Insurable ValueFor any Property, the sum of the full value of the insured's:
covered Property;
Property-related business income values; and
any other covered Property interests.
- on a standalone policy, and
- of the largest individual property on a Blanket PolicyBlanket PolicyInsurance policy providing coverage for multiple properties and/or multiple perils. ;
- if the named storm policy does not cover costs due to flooding from storm surge, the BorrowerBorrowerPerson who is the obligor per the Note. maintains flood insurance for any buildings located in the 500-year flood zone equal to the maximum coverage available through NFIPNFIPProgram of flood insurance coverage and floodplain management administered under the National Flood Insurance Act. policies or their equivalent;
- the valuation does not rely solely on Probable Maximum Loss (PML) calculations; and
- the deductible does not exceed the greatest of:
- 7.5% of the Insurable ValueInsurable ValueFor any Property, the estimate of the maximum dollar amount needed to replace, repair, or reproduce the Property, but excluding any land value. ;
- the applicable maximum amount per Part II, Chapter 5: Property and Liability Insurance, Section 501.02B: Deductibles; and
- for business income insurance:
- when expressed as a number of days, 15 days; or
- when expressed as a dollar amount, $100,000.
Guidance
If named storm coverage is unavailable, Fannie Mae will consider approving 1 of the following options:
- a State insurance plan; or
- a State-managed insurance pool for
- windstorm, or
- beach erosion.
| 502.03 | |
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| 502.03A | |
|
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Operating Procedures
To determine if any buildings located at the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). are, or will be, fully or partially located in an SFHASFHASpecial Flood Hazard Area designated by FEMA. , you must:
- use the FEMAFEMAFederal Emergency Management Agency Standard Flood Hazard Determination Form (SFHDF);
- evaluate all PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). structures when ordering the SFHDF;
- provide the vendor supplemental PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the
fee simple or Leasehold interest,
Improvements, and
personal property (per the Uniform Commercial Code).
information including the
- legal description, and
- survey or site plan;
- obtain an image overlay from Flood Vendor;
- ensure the resulting Flood Zone Determination (FZD) form, and any subsequent FZD forms, are effective for the entire Mortgage LoanMortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents, or a mortgage debt obligation with a Fannie Mae credit enhancement. term; and
- retain a signed copy in your Servicing FileServicing FileYour file for each Mortgage Loan serviced. .
Requirements
You must ensure the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). has flood insurance if:
- any income-producing ImprovementsImprovementsBuildings, structures, improvements, and alterations, including the multifamily housing dwellings, now or hereafter constructed or placed on the Property, including all fixtures (as defined in the UCC). or any non-income producing ImprovementsImprovementsBuildings, structures, improvements, and alterations, including the multifamily housing dwellings, now or hereafter constructed or placed on the Property, including all fixtures (as defined in the UCC). that support amenities are in an SFHA ZoneSFHA ZoneSpecial Flood Hazard Area designated by FEMA. starting with the letter A or V; or
- the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). is located within a Coastal Barrier Resources System (CBRS) or Otherwise Protected Area (OPA), regardless of if the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). is located in an SFHASFHASpecial Flood Hazard Area designated by FEMA. .
A Mortgage LoanMortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents, or a mortgage debt obligation with a Fannie Mae credit enhancement. is ineligible for purchase if the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). is in:
- an SFHASFHASpecial Flood Hazard Area designated by FEMA. ; and
- a community that does not participate in the NFIPNFIPProgram of flood insurance coverage and floodplain management administered under the National Flood Insurance Act. .
You must:
- complete the most recent version of the Standard Flood Hazard Determination Form issued by FEMAFEMAFederal Emergency Management Agency ;
- retain in your Servicing FileServicing FileYour file for each Mortgage Loan serviced.
a
- copy of the form, and
- signed copy of Notice to Borrower of Special Flood Hazard and Federal Assistance;
- require the determination firm, and any monitoring company, to notify you whenever there is a flood zone change; and
- ensure the coverage:
- meets the minimum mandatory purchase requirements per:
- the following Federal flood insurance statutes, as amended and/or restated from time to time, including the:
- National Flood Insurance Act of 1968 (1968 Act);
- Biggert-Waters Flood Insurance Reform Act of 2012 (Biggert Waters);
- Flood Disaster Protection Act of 1973 (FDPA); and
-
Homeowner Flood Insurance Affordability Act of 2014; and
- any applicable Federal agency rulemaking and publication; and
- the following Federal flood insurance statutes, as amended and/or restated from time to time, including the:
- equals at least 100% of the Insurable ValueInsurable ValueFor any Property, the estimate of the maximum dollar amount needed to replace, repair, or reproduce the Property, but excluding any land value.
of
- the first 2 floors above grade, and
- any ImprovementsImprovementsBuildings, structures, improvements, and alterations, including the multifamily housing dwellings, now or hereafter constructed or placed on the Property, including all fixtures (as defined in the UCC). below grade;
- meets the minimum mandatory purchase requirements per:
- require contents coverage for BorrowerBorrowerPerson who is the obligor per the Note. -owned personal property;
- ensure you have an established process to obtain an inventory and the Insurable ValueInsurable ValueFor any Property, the estimate of the maximum dollar amount needed to replace, repair, or reproduce the Property, but excluding any land value. of BorrowerBorrowerPerson who is the obligor per the Note. -owned contents or business personal property within buildings located in SFHAsSFHAsSpecial Flood Hazard Area designated by FEMA. to determine required coverage; and
- retain documentation of the presence or absence of BorrowerBorrowerPerson who is the obligor per the Note. -owned contents or business personal property within the building and in your Servicing FileServicing FileYour file for each Mortgage Loan serviced. .
Guidance
Generally, contents or business personal property:
- includes equipment and inventory
- owned by the BorrowerBorrowerPerson who is the obligor per the Note. , and
- used in connection with Property’sProperty’sMultifamily residential real estate securing the Mortgage Loan, including the
fee simple or Leasehold interest,
Improvements, and
personal property (per the Uniform Commercial Code).
- ownership,
- management, or
- operation; and
- does not otherwise constitute fixtures.
| 502.03B | |
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Requirements
You must comply with the following tables.
| Flood Maximum Deductibles | |
|---|---|
| For... | You must ensure the... |
| Business income insurance |
deductible does not exceed:
|
| NFIP policies | maximum deductible available under NFIPNFIPProgram of flood insurance coverage and floodplain management administered under the National Flood Insurance Act. is acceptable. |
| Private Flood Policy Maximum Deductibles | |
|---|---|
| If the Property has... | Then maximum deductible per occurrence is... |
| 10 or fewer buildings in SFHA | $50,000 |
| More than 10 buildings in SFHA | $500,000 |
| 502.03C | |
|
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Requirements
You must comply with the following table.
| NFIP and Excess Flood Coverage | |
|---|---|
| If... | Then... |
| Coverage available under the NFIP is insufficient | the BorrowerBorrowerPerson who is the obligor per the Note. must purchase excess flood insurance covering the difference, up to the required coverage amount. |
|
Per elevation certificates completed by a licensed land surveyor, engineer, or architect:
|
|
To remove a PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). /building from an SFHASFHASpecial Flood Hazard Area designated by FEMA. , only an updated FEMAFEMAFederal Emergency Management Agency Standard Flood Hazard Determination Form (SFHDF) based on the following is acceptable:
- Letter of Map Amendment (LoMA);
- Letter of Map Revision (LoMR); or
- Letter of Determination Review (LoDR).
During the LoMA process,
- only NFIPNFIPProgram of flood insurance coverage and floodplain management administered under the National Flood Insurance Act. insurance is required, and
- the maximum term for NFIPNFIPProgram of flood insurance coverage and floodplain management administered under the National Flood Insurance Act. insurance is 12 months.
If any ImprovementsImprovementsBuildings, structures, improvements, and alterations, including the multifamily housing dwellings, now or hereafter constructed or placed on the Property, including all fixtures (as defined in the UCC). are reclassified as within an SFHA ZoneSFHA ZoneSpecial Flood Hazard Area designated by FEMA. starting with the letter A or V after you DeliverDeliverSubmission of all correct, accurate, and certifiable documents, data, and information with all applicable documents properly completed, executed, and recorded as needed, and any deficiencies resolved to Fannie Mae’s satisfaction. the Mortgage LoanMortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents, or a mortgage debt obligation with a Fannie Mae credit enhancement. , you must require the BorrowerBorrowerPerson who is the obligor per the Note. to obtain compliant flood insurance.
Guidance
To prevent the BorrowerBorrowerPerson who is the obligor per the Note. from paying for more coverage than an NFIPNFIPProgram of flood insurance coverage and floodplain management administered under the National Flood Insurance Act. policy would pay out, you should evaluate the extent of recovery allowed under the NFIPNFIPProgram of flood insurance coverage and floodplain management administered under the National Flood Insurance Act. policy for the type of building being insured.
If all buildings do not require flood insurance, but the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). ingress is located in an SFHASFHASpecial Flood Hazard Area designated by FEMA. , you should consider requiring business income insurance for excess flood to cover all buildings.
Flood insurance is not required if only unimproved portions of the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). , or non-income producing ImprovementsImprovementsBuildings, structures, improvements, and alterations, including the multifamily housing dwellings, now or hereafter constructed or placed on the Property, including all fixtures (as defined in the UCC). that do not support amenities at the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). , are located in an SFHASFHASpecial Flood Hazard Area designated by FEMA. .
| Non-Income Producing Improvements | |
|---|---|
| Supporting amenities include... | Not supporting amenities include... |
|
|
Business income insurance is not required for non-income producing ImprovementsImprovementsBuildings, structures, improvements, and alterations, including the multifamily housing dwellings, now or hereafter constructed or placed on the Property, including all fixtures (as defined in the UCC). .
You should consider that
- conditions may change over time, and
- flood zones may be remapped.
You or Fannie Mae may require flood insurance for ImprovementsImprovementsBuildings, structures, improvements, and alterations, including the multifamily housing dwellings, now or hereafter constructed or placed on the Property, including all fixtures (as defined in the UCC). outside an SFHA ZoneSFHA ZoneSpecial Flood Hazard Area designated by FEMA. starting with the letter A or V, but within an area designated by FEMAFEMAFederal Emergency Management Agency as Zone X or Zone D (for example, if a Property'sProperty'sMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). location is subject to flooding due to storm water, or within close proximity to an SFHASFHASpecial Flood Hazard Area designated by FEMA. boundary).
The acceptable deductible for excess flood insurance is the coverage limit of the underlying NFIPNFIPProgram of flood insurance coverage and floodplain management administered under the National Flood Insurance Act. policy.
Elevation certificates are not valid to determine if ImprovementsImprovementsBuildings, structures, improvements, and alterations, including the multifamily housing dwellings, now or hereafter constructed or placed on the Property, including all fixtures (as defined in the UCC). are in an SFHASFHASpecial Flood Hazard Area designated by FEMA. .
You should:
- obtain flood zone determinations from qualified third-party flood-zone determination firms; and
- exercise care and sound judgment when selecting the firm.
You must:
- obtain life-of-loan monitoring for each PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). from a third-party flood-zone determination firm;
- complete FEMA'sFEMA'sFederal Emergency Management Agency Standard Flood Hazard Determination form to determine if any ImprovementsImprovementsBuildings, structures, improvements, and alterations, including the multifamily housing dwellings, now or hereafter constructed or placed on the Property, including all fixtures (as defined in the UCC). are located in an SFHASFHASpecial Flood Hazard Area designated by FEMA. ; and
- retain in your Servicing FileServicing FileYour file for each Mortgage Loan serviced.
:
- a completed copy of the form;
- a signed copy of the Notice to Borrower of Special Flood Hazard and Federal Assistance (included in the Flood Determination Certificate); and
- if you permitted a reduced amount of excess flood insurance,
- your analysis, and
- related documentation supporting the economic feasibility and reduction amount.
| 502.03D | |
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Requirements
You must ensure a private flood insurance policy:
- is written on a Replacement Cost Valuation basis without any deduction for depreciation; and
- provides coverage and terms as broad as or better than the coverage and terms provided under a standard flood insurance policy issued under the NFIPNFIPProgram of flood insurance coverage and floodplain management administered under the National Flood Insurance Act. .
| 502.04 | |
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|
Requirements
You must ensure the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). has earthquake insurance if required by Fannie Mae. For any required coverage, ensure the:
- coverage is at least 100% of the Insurable ValueInsurable ValueFor any Property, the estimate of the maximum dollar amount needed to replace, repair, or reproduce the Property, but excluding any land value. ;
- waiting period is no more than 15 days; and
- deductible does not exceed the greatest of:
- 10% of the insurable PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). value;
- the applicable maximum amount per Part II, Chapter 5: Property and Liability Insurance, Section 501.02B: Deductibles; and
- for business income insurance, the greater of
- the maximum deductible for the property insurance policy, or
- a 15-day waiting period.
Earthquake insurance may be required while the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). is being retrofitted.
Guidance
For business income insurance deductible, if a dollar amount is indicated, you should calculate the per day amount ensuring the deductible does not exceed the 15-day total amount allowed. See Part II, Chapter 5: Property and Liability Insurance, Section 502.02: Named Storm Insurance for a deductible calculation example.
Operating Procedures
If retrofitting is required and not completed within the agreed timeframe, you must not accept earthquake insurance as a substitute.
| 502.05 | |
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Requirements
You must ensure:
- each PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). has terrorism insurance for property damage/casualty and liability exposures;
- exceptions are only made to professional liability insurance where terrorism coverage is not required;
- the coverage is at least 100% of the Insurable ValueInsurable ValueFor any Property, the estimate of the maximum dollar amount needed to replace, repair, or reproduce the Property, but excluding any land value. attributed only to the ImprovementsImprovementsBuildings, structures, improvements, and alterations, including the multifamily housing dwellings, now or hereafter constructed or placed on the Property, including all fixtures (as defined in the UCC). ; and
- for business income insurance, the deductible does not exceed:
- when expressed as a number of days, 15 days; or
- when expressed as a dollar amount, $100,000.
| 502.06 | |
|
|
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Requirements
You must ensure each PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). and BorrowerBorrowerPerson who is the obligor per the Note. is covered, without exclusions, throughout the Mortgage LoanMortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents, or a mortgage debt obligation with a Fannie Mae credit enhancement. term by liability insurance for
- bodily injury,
- PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). damage, and
- personal injury.
Requirements
You must ensure the general liability insurance coverage is at least
- $1 million per occurrence/$2 million general aggregate limit, plus
- excess/umbrella insurance as follows:
|
If the number of stories in the building is... |
The minimum excess/umbrella insurance coverage is... |
|---|---|
|
1 - 4 |
$2 million |
|
5 - 10 |
$5 million |
|
11 - 20 |
$10 million |
|
Over 20 |
$20 million |
The maximum deductibles:
- apply to
- general liability,
- umbrella/excess liability, and
- professional liability; and
- must be based on the Total Insurable ValueTotal Insurable ValueFor any Property, the sum of the full value of the insured's: covered Property; Property-related business income values; and any other covered Property interests. of the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). insurance policy as follows:
|
If the Total Insurable Value is... |
The maximum deductible amount per occurrence is... |
|---|---|
|
Less than $5 million |
$50,000 |
|
Equal to or greater than $5 million, but less than $50 million |
$100,000 |
|
Equal to or greater than $50 million, but less than $100 million |
$150,000 |
|
Equal to or greater than $100 million |
$275,000 |
Guidance
You may satisfy the insurance coverage requirements:
- with any combination of primary liability insurance and excess/umbrella insurance coverage, provided the aggregate coverage meets the required minimum limits; and
- for excess/umbrella insurance, when the coverage limit meets the requirement for the location with the most stories.
You should ensure that any liability policy does not contain exclusions for normal coverage that are normal and customary in the standard liability form, such as
- assault and battery,
- animal attacks, and
- firearms, etc.
The maximum deductible amount, per occurrence, is the combined deductible for both the
- underlying general or professional liability, and
- excess/umbrella liability.
For example, if the Total Insurable ValueTotal Insurable ValueFor any Property, the sum of the full value of the insured's: covered Property; Property-related business income values; and any other covered Property interests. is $45 million, then the maximum deductible is $100,000 combined for the underlying liability and excess/umbrella liability in any combination (e.g., $75,000 deductible/self-insured retention on the general liability and $25,000 on the excess/umbrella liability).
| 502.06B | |
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Requirements
If a Seniors Housing PropertySeniors Housing PropertyMultifamily residential rental property with any combination of Independent Living, Assisted Living, Alzheimer’s/Dementia Care, or Skilled Nursing units. provides any level of healthcare, you must ensure the:
- PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the
fee simple or Leasehold interest,
Improvements, and
personal property (per the Uniform Commercial Code).
has professional liability insurance covering
- professional errors and omissions,
- medical malpractice, and
- all types of abuse; and
- coverage is at least
- $1 million per occurrence/$2 million general aggregate limit, plus
- excess/umbrella insurance as follows:
|
If the number of licensed beds is... |
The minimum excess/umbrella insurance coverage is... |
|---|---|
|
1 - 100 |
$2 million |
|
101 - 500 |
$5 million |
|
501 - 1,000 |
$10 million |
|
Over 1,000 |
$20 million |
You must ensure:
- for a PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). with Assisted LivingAssisted LivingSeniors Housing Property offering services limited to non-medical personal care, including ADL assistance, which are typically licensed and regulated by a state or local governmental authority. beds, Independent LivingIndependent LivingSeniors Housing providing limited programs of assistance for domestic activities (e.g. meals, housekeeping, activities, transportation, etc.), and typically resembles market rate units. beds are not counted when determining the minimum coverage limit;
- when general liability insurance and professional liability insurance coverages are combined under an excess/umbrella insurance policy, the coverage meets the higher minimum limit of the 2 underlying coverages; and
- the maximum deductible for professional liability insurance does not exceed the applicable maximum amount per Part II, Chapter 5: Property and Liability Insurance, Section 502.06A: Commercial General Liability Insurance.
Guidance
When using a Claims-Made Policy, you should consider if an adequate “retroactive date” is in place providing coverage for acts that occurred before a specified date – usually before the effective date of the current policy. A retroactive date of 3 - 5 years before the current policy’s effective date is common.
If the BorrowerBorrowerPerson who is the obligor per the Note. changes carriers during the Mortgage LoanMortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents, or a mortgage debt obligation with a Fannie Mae credit enhancement. term, the addition of tail coverage or an extended reporting period endorsement, extending coverage after the cancellation or termination of a Claims-Made Policy, is important to ensure no lapse in coverage occurs.
You may satisfy the coverage requirements:
- with any combination of primary liability insurance and excess/umbrella insurance coverage, provided the aggregate coverage meets the required minimum limits; and
- for excess/umbrella insurance when the coverage limit meets the requirement for the location with the most beds.
| 502.06C | |
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|
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Requirements
You must ensure:
- the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). has workers’ compensation and employer’s liability insurance (including terrorism coverage), if required where the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). is located; and
- coverage meets the statutory limits.
Requirements
You must ensure each PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). owned by a Cooperative OrganizationCooperative OrganizationCorporation or legal entity where each shareholder or equity owner is granted the right to occupy a unit in a multifamily residential property under a proprietary lease or occupancy agreement. has:
- directors’ and officers’ liability insurance; and
- coverage equal to at least $1 million per occurrence.
| Section 503 | |
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|
Guidance
Any environmental conditions or risks impacting the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). should be fully understood and considered in the underwriting.
Requirements
You must:
- comply with the Environmental Due Diligence Requirements (Form 4251), including obtaining a Phase I Environmental Site AssessmentPhase I Environmental Site AssessmentEnvironmental Site Assessment conducted per the current ASTM E-1527 standard and the resulting report. (Phase I ESA) of the entire PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). ;
- ensure the Phase I ESAPhase I ESAEnvironmental Site Assessment conducted per the current ASTM E-1527 standard and the resulting report.
:
- is performed per the instructions in Form 4251, including meeting the current requirements of ASTMASTMAmerican Society for Testing Materials E1527;
- is prepared by an environmental professional as that term is defined in 40 C.F.R. § 312.10 (an Environmental Professional);
- identifies all environmental conditions and risks that may potentially impact
- resident safety,
- marketability, or
- PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). value; and
- clearly identifies how to properly mitigate those conditions and risks, including where applicable:
- the Environmental Professional’s recommendations regarding additional investigation, or requirements of government authority or regulatory agency; or
- action to remediate or abate any Recognized Environmental Condition (REC)/Controlled Recognized Environmental Condition (CREC), as those terms are defined in ASTMASTMAmerican Society for Testing Materials E1527; and
- obtain Fannie Mae's approval before Rate LockRate LockAgreement between you and the Investor containing the terms of the Lender-Arranged Sale or Multifamily Trading Desk trade of the Mortgage Loan and the MBS terms and conditions relating to the underlying MBS, if applicable, which may be documented via a recorded telephone conversation. if the Phase I ESAPhase I ESAEnvironmental Site Assessment conducted per the current ASTM E-1527 standard and the resulting report. identified any RECs/CRECs.
Guidance
You may rely on a preliminary or draft Phase I ESAPhase I ESAEnvironmental Site Assessment conducted per the current ASTM E-1527 standard and the resulting report. to obtain a Rate LockRate LockAgreement between you and the Investor containing the terms of the Lender-Arranged Sale or Multifamily Trading Desk trade of the Mortgage Loan and the MBS terms and conditions relating to the underlying MBS, if applicable, which may be documented via a recorded telephone conversation. and CommitmentCommitmentContractual agreement between you and Fannie Mae where Fannie Mae agrees to buy a Mortgage Loan at a future date in exchange for an MBS, or at a specific price for a Cash Mortgage Loan, and you agree to Deliver that Mortgage Loan. .
| 503.02 | |
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|
|
Requirements
You must:
- Obtain all investigations recommended or indicated by the Phase I ESAPhase I ESAEnvironmental Site Assessment conducted per the current ASTM E-1527 standard and the resulting report. .
- Conduct a thorough review and analysis of the Phase I ESAPhase I ESAEnvironmental Site Assessment conducted per the current ASTM E-1527 standard and the resulting report. .
- Provide the Environmental Professional with all available prior Phase I ESAsPhase I ESAsEnvironmental Site Assessment conducted per the current ASTM E-1527 standard and the resulting report. , investigations, and any relevant and readily available environmental materials.
- Provide the AppraiserAppraiserPerson engaged to estimate a Property’s market value per USPAP. with any documentation from the Phase I ESAPhase I ESAEnvironmental Site Assessment conducted per the current ASTM E-1527 standard and the resulting report. necessary to accurately assess the Property'sProperty'sMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). value.
- Identify if the Property'sProperty'sMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). state has an environmental Super Lien Statute and, if so, confirm PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). conditions are unlikely to result in the imposition of a super lien having priority over the Security InstrumentSecurity InstrumentInstrument creating a lien or encumbrance on 1 or more Properties and securing the Loan Document obligations. .
- Disclose to Fannie Mae your knowledge of any actual or suspected environmental conditions affecting the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). , whether or not disclosed in the Phase I ESAPhase I ESAEnvironmental Site Assessment conducted per the current ASTM E-1527 standard and the resulting report. .
- Ensure any required Operations and Maintenance Plans (O&M Plans) are obtained and located on the site throughout the Mortgage LoanMortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents, or a mortgage debt obligation with a Fannie Mae credit enhancement. term.
- Assess the Borrower’sBorrower’sPerson who is the obligor per the Note. ability to carry out any O&M PlanO&M PlanRequired plan for remediating a Recognized Environmental Condition or Business Enivronmental Risk as described in Environmental Due Diligence Requirements (Form 4251). .
- Not DeliverDeliverSubmission of all correct, accurate, and certifiable documents, data, and information with all applicable documents properly completed, executed, and recorded as needed, and any deficiencies resolved to Fannie Mae’s satisfaction. a Mortgage LoanMortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents, or a mortgage debt obligation with a Fannie Mae credit enhancement. if the BorrowerBorrowerPerson who is the obligor per the Note. or its agents are not financially or organizationally capable of satisfying the requirements of the O&M PlanO&M PlanRequired plan for remediating a Recognized Environmental Condition or Business Enivronmental Risk as described in Environmental Due Diligence Requirements (Form 4251). .
- Evaluate the potential risk of loss and liability to the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the
fee simple or Leasehold interest,
Improvements, and
personal property (per the Uniform Commercial Code).
, the BorrowerBorrowerPerson who is the obligor per the Note.
, you, or Fannie Mae posed by any
- REC/CREC,
- Business Environmental RiskBusiness Environmental RiskRisk of material environmental or environmentally-driven impact on the business or property associated with a Property or the past, current or planned use of a Property, including all “non-scope considerations” under current ASTM E 1527, asbestos or asbestos-containing materials, radon, lead-based…, or
- other environmental condition, whether or not disclosed in the Phase I ESAPhase I ESAEnvironmental Site Assessment conducted per the current ASTM E-1527 standard and the resulting report. .
If you become aware of any REC/CREC, you must:
- Obtain a Remediation Plan from the BorrowerBorrowerPerson who is the obligor per the Note.
that
- is prepared by an Environmental Professional, as required by Form 4251,
- will protect the health and safety of the residents and bring the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). into regulatory compliance, and
- includes a cost estimate and schedule for completing the work.
- Add the estimated cost of the Remediation Plan to the Completion/Repair EscrowCompletion/Repair EscrowCustodial Account funded on the Mortgage Loan Origination Date for Completion/Repairs or capital improvements per the Loan Documents. requirement of the Loan DocumentsLoan DocumentsAll Fannie Mae-approved documents evidencing, securing, or guaranteeing the Mortgage Loan. .
Guidance
The amount funded into the Completion/Repair EscrowCompletion/Repair EscrowCustodial Account funded on the Mortgage Loan Origination Date for Completion/Repairs or capital improvements per the Loan Documents. on the Mortgage Loan Origination DateMortgage Loan Origination DateDate you fund a Mortgage Loan to the Borrower. should be at least 125% of the estimated cost of the Remediation Plan.
Requirements
You must:
- consider revisions to the Environmental Indemnity Agreement (Form 6085) to protect you and Fannie Mae from liability associated with any
- REC/CREC (including the cost to investigate/remediate any such condition), and
- violation of Environmental LawsEnvironmental LawsAll current federal, state, and local laws, ordinances, regulations, standards, rules, policies, and other governmental requirements, administrative rulings, court judgments, and decrees, and all amendments thereto, relating to pollution or protection of human health, wildlife, wetlands, natural… by the BorrowerBorrowerPerson who is the obligor per the Note. ;
- document your evaluation of potential revisions, including at a minimum, whether the following revisions are appropriate:
- additional representation and warranty where the BorrowerBorrowerPerson who is the obligor per the Note. disclaims responsibility for any REC/CREC, if appropriate and accurate; and
- additional covenant(s) requiring
- implementation of the Remediation Plan,
- compliance with any Environmental Activity and Use LimitationsEnvironmental Activity and Use LimitationsLegal or physical restrictions or limitations on the use of, or access to, all or any portion of a site, facility, groundwater, soils, or other media at, on, about or under a site or facility to reduce or eliminate potential exposure to Hazardous Materials or to prevent activities that could… and/or institutional or engineering controls, and
- maintenance of BorrowerBorrowerPerson who is the obligor per the Note. eligibility for applicable liability protection status;
- specifically identifying any liability associated with the REC/CREC in the indemnification provisions; and
- other required terms and conditions based on Fannie Mae environmental counsel review.
| Section 504 | |
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Requirements
You must:
- assess the seismic risk before Rate LockRate LockAgreement between you and the Investor containing the terms of the Lender-Arranged Sale or Multifamily Trading Desk trade of the Mortgage Loan and the MBS terms and conditions relating to the underlying MBS, if applicable, which may be documented via a recorded telephone conversation. by analyzing the PGAPGAPeak Ground Acceleration as determined by the United States Geological Survey. at the Property'sProperty'sMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). location;
- determine if the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). has an acceptable level of seismic risk;
- complete Form 4099.C if the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). is located in a High Seismic RiskHigh Seismic RiskArea or a specific site identified by the most recent USGS data (see United States Geological Survey (USGS) Peak Ground Acceleration (PGA) Calculator Tutorial) as having a PGA equal to or greater than 0.15g (i.e., 15% of the acceleration of gravity (g) using a 10% probability of exceedance in a 50… area;
- obtain a Seismic Risk Assessment (SRA) if a Structural Risk Factor is identified per Form 4099.C; and
- not DeliverDeliverSubmission of all correct, accurate, and certifiable documents, data, and information with all applicable documents properly completed, executed, and recorded as needed, and any deficiencies resolved to Fannie Mae’s satisfaction.
a Mortgage LoanMortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by
the Loan Documents, or
a mortgage debt obligation with a Fannie Mae credit enhancement.
if the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the
fee simple or Leasehold interest,
Improvements, and
personal property (per the Uniform Commercial Code).
has
- a PGAPGAPeak Ground Acceleration as determined by the United States Geological Survey. equal to or greater than 0.15g, and
- 1 of these Structural Risk Factors:
- an unreinforced masonry building that has not been seismically retrofitted; or
- a building constructed on a slope with an angle exceeding 30 degrees (a 50% slope).
Guidance
After you DeliverDeliverSubmission of all correct, accurate, and certifiable documents, data, and information with all applicable documents properly completed, executed, and recorded as needed, and any deficiencies resolved to Fannie Mae’s satisfaction. the Mortgage LoanMortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents, or a mortgage debt obligation with a Fannie Mae credit enhancement. , no additional seismic risk evaluation is needed.
Requirements
You must:
- obtain a Level 1 SRA dated within 12 months before the Commitment DateCommitment DateDate a Commitment is confirmed by Fannie Mae per Part IV, Chapter 2: Rate Lock and Committing, Section 204: Commitments. for any PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). with one of the Structural Risk Factors listed in Form 4099.C; and
- ensure the SRA:
- meets the ASTMASTMAmerican Society for Testing Materials seismic standards (ASTMASTMAmerican Society for Testing Materials E2026 – Standard Guide for Seismic Risk Assessment of Buildings and ASTMASTMAmerican Society for Testing Materials E2557 – Standard Practice for Probable Maximum Loss (PML) Evaluations for Earthquake Due Diligence Assessments);
- includes estimates for the Scenario Expected Loss (SEL) and the Scenario Upper Loss (SUL);
- uses a 10% probability of exceedance in a 50-year period;
- meets ASTMASTMAmerican Society for Testing Materials seismic standard professional qualifications; and
- complies with Form 4099.C, including
- structured data per Seismic Risk Assessment Data Supplement (Form 4093), and
- a report narrative.
Guidance
For a Small Mortgage LoanSmall Mortgage LoanMortgage Loan with an original loan amount less than or equal to $9 million. :
- the SRA field investigation may be performed by a PCAPCAAssessment of the Property's physical condition and historical operation. consultant or field observer if that professional has at least 2 years of experience performing seismic risk assessments; and
- a new SRA is not required for Supplemental Mortgage LoansSupplemental Mortgage LoansMortgage Loan purchased by Fannie Mae that is subordinated to, and has a Mortgage Loan Origination Date after, the Senior Mortgage Loan that is also owned by Fannie Mae. ; you may rely on the original underwriting seismic analysis.
Guidance
The Property'sProperty'sMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). SEL percentage and the building stability assessment determines if the seismic risk is acceptable.
Requirements
You must:
- determine if the Property’sProperty’sMultifamily residential real estate securing the Mortgage Loan, including the
fee simple or Leasehold interest,
Improvements, and
personal property (per the Uniform Commercial Code).
seismic risk is acceptable by confirming all income-producing ImprovementsImprovementsBuildings, structures, improvements, and alterations, including the multifamily housing dwellings, now or hereafter constructed or placed on the Property, including all fixtures (as defined in the UCC).
or any non-income producing ImprovementsImprovementsBuildings, structures, improvements, and alterations, including the multifamily housing dwellings, now or hereafter constructed or placed on the Property, including all fixtures (as defined in the UCC).
that support amenities:
- comply with Part II, Chapter 5: Property and Liability Insurance, Section 504.03: Acceptable Levels of Seismic Risk;
- have an SEL of 20% or less; and
- meet the current building stability requirements of ASTMASTMAmerican Society for Testing Materials E2026; and
- not DeliverDeliverSubmission of all correct, accurate, and certifiable documents, data, and information with all applicable documents properly completed, executed, and recorded as needed, and any deficiencies resolved to Fannie Mae’s satisfaction. a Mortgage LoanMortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents, or a mortgage debt obligation with a Fannie Mae credit enhancement. secured by a PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). having any ImprovementsImprovementsBuildings, structures, improvements, and alterations, including the multifamily housing dwellings, now or hereafter constructed or placed on the Property, including all fixtures (as defined in the UCC). with an SEL greater than 40%.
Guidance
Your analysis should include:
- a Level 1 SRA, including Appendix X4 (ASTMASTMAmerican Society for Testing Materials E2557);
- your analysis of the seismic issues and recommendation, describing the:
- severity and pervasiveness of the conditions driving the SEL and stability issues;
- risks presented to
- building stability,
- building damageability,
- site stability, and
- life safety; and
- recommended retrofit or remediation requirements;
- a retrofit letter or the Borrower’sBorrower’sPerson who is the obligor per the Note.
retrofit plan, including the
- timetable, and
- cost estimate;
- Form 4099.C; and
- a minimum of 6 PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the
fee simple or Leasehold interest,
Improvements, and
personal property (per the Uniform Commercial Code).
photos, including
- photos of areas significant to the seismic calculation or stability issue, and
- elevation views of any ImprovementsImprovementsBuildings, structures, improvements, and alterations, including the multifamily housing dwellings, now or hereafter constructed or placed on the Property, including all fixtures (as defined in the UCC).
having
- an SEL over 20%, or
- a stability issue.
| 504.04 | |
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Requirements
You must ensure the SRA describes a proposed retrofit plan, including associated costs, if a PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). must be retrofitted under any
- law,
- regulation, or
- ordinance.
| 504.05 | |
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Requirements
For any PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). where any ImprovementsImprovementsBuildings, structures, improvements, and alterations, including the multifamily housing dwellings, now or hereafter constructed or placed on the Property, including all fixtures (as defined in the UCC). have an SEL greater than 20% or a building stability issue, you must contact Multifamily InsuranceMultifamily InsuranceTeam that can be contacted at [email protected]. to determine acceptable mitigants for Mortgage LoanMortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents, or a mortgage debt obligation with a Fannie Mae credit enhancement. DeliveryDeliverySubmission of all correct, accurate, and certifiable documents, data, and information with all applicable documents properly completed, executed, and recorded as needed, and any deficiencies resolved to Fannie Mae’s satisfaction. , including:
- performing a seismic retrofit sufficient to resolve all stability issues and reduce the SEL of all ImprovementsImprovementsBuildings, structures, improvements, and alterations, including the multifamily housing dwellings, now or hereafter constructed or placed on the Property, including all fixtures (as defined in the UCC). to 20% or below; and
- obtaining earthquake insurance coverage per Part II, Chapter 5: Property and Liability Insurance, Section 502.04: Earthquake Insurance.
Earthquake insurance does not mitigate seismic risk.