Section 501

Property and Liability Insurance

501.01	General Insurance – Applies to All Policies

501.01A	Generally

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 a per occurrence basis, except the following, which may be written on a per occurrence or claims-made basis:
- 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
use Replacement Cost valuation; however, coverage for roofs may use
- Actual Cash Value, or
- Replacement Cost valuation.

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 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

Operating Procedures

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	Blanket and Other Policies Covering Multiple Properties

Requirements

You must ensure:

any blanket policy 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 blanket policy may include

blanket policies,
blanket programs,
first loss limit policies,
first loss policies,
layered programs,
master policies,
master programs,
property programs,
pooled insurance,
scheduled limit policies,
pooled programs,
shared limit policies, and
similar programs insuring multiple locations under the same insurance policy.

You may accept a blanket policy if

all other requirements are met, and
the Terms and Conditions endorsement does not reduce, limit, or exclude any required coverage.

When evaluating a blanket policy or multiple property policies, you should consider:

Are the required coverages adequate for 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). ?
If the blanket policy limits are less than 100% of the total insurable value of the covered properties, is the shortfall warranted by high policy limits and geographic dispersion?
If the blanket policy covers high catastrophic exposure in a geographically concentrated area, is the limit adequate for the exposure, or should the BorrowerBorrowerPerson who is the obligor per the Note. obtain additional coverage?

Programs insuring properties that are not under common ownership with the BorrowerBorrowerPerson who is the obligor per the Note. or a Key PrincipalKey PrincipalPerson who controls and/or manages the Borrower or the Property, is critical to the successful operation and management of the Borrower and the Property, and/or may be required to provide a Guaranty. , PrincipalPrincipalPerson who owns or controls specified interests in the Borrower per Part I, Chapter 3: Borrower, Guarantor, Key Principals, and Principals, Section 303: Key Principals, Principals, and Guarantors. , SponsorSponsorPrincipal equity owner and/or primary decision maker of the Borrower (often the Key Principal or the Person Controlling the Key Principal). , or AffiliateAffiliateWhen referring to an affiliate of a Lender, any other Person or entity that Controls, is Controlled by, or is under common Control with, the Lender. When referring to an affiliate of a Borrower or Key Principal: any Person that owns any direct ownership interest in Borrower or Key… of the BorrowerBorrowerPerson who is the obligor per the Note. , or managed by the same property management company, may provide evidence of insurance that appears to be a standard layered program.

You should look for red flags signaling that a program may not be a standard layered program, such as:

the BorrowerBorrowerPerson who is the obligor per the Note. or SponsorSponsorPrincipal equity owner and/or primary decision maker of the Borrower (often the Key Principal or the Person Controlling the Key Principal). is not the first named insured;
the premium significantly decreased 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). was added to an existing policy; or
having a large, rounded coverage limit for property insurance.

You may confirm common ownership through an insurance broker or agent. If the covered properties are not related by ownership or under the same property management, you should also evaluate the insurance administrator, considering

the acceptability of its business practices,
possible payment of claims, and
years in business, etc.

Operating Procedures

You must

clearly document your analysis of any blanket policy (related or unrelated entities) in your Servicing FileServicing FileYour file for each Mortgage Loan serviced. , and
include supported conclusions.

501.01C	Risk Retention Groups and Captive Insurance

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- / VI from A.M. Best Company; or
A from Demotech, Inc.

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
Document/Entity	Description
Certificate of Authority (CA)	State-issued license to an insurance company to conduct business, and includes the date of authority, complete 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. name, and state of domicile.
State Examination Report	Report covering a specific timeframe that: reviews the company's: balance sheet (including assets, liabilities, capital, and surplus); statement of income; investments; premiums; reinsurance assumed and ceded; unpaid losses and loss adjustment expense; and losses and loss adjustment expense incurred; and ascertains its: financial condition; ability to fulfill obligations; and compliance with applicable state laws and regulations.
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. open and paid losses, loss adjustment expense reserves, capital, and surplus.
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: single parent captive (pure captive) - when an insurance subsidiary insures the loss exposures of its parent company or single entity; or group captive – a captive owned by several different companies who are normally from the same industry, and have similar risks.

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. .

501.01D	Insurance Carrier Rating

Requirements

You do not need to rate

State pools or funds, or
NFIPNFIPProgram of flood insurance coverage and floodplain management administered under the National Flood Insurance Act. policies.

All Other Insurance Carrier Ratings
You must ensure...	The insurance carrier...
For a new policy	for A.M. Best Company, has a general policyholder rating of A- or better, and financial size category of VI or better; or for Demotech, Inc., has a Financial Stability Rating of A or better.
For an existing policy (at origination or afterward)	for A.M. Best Company, has a general policyholder rating of B++ or better, and complies with the rating requirements for new policies at renewal; or for Demotech, Inc., complies with the rating requirements for new policies.

Guidance

A new policy is one that is

not already in force, and
most common for an acquisition.

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 policy that the BorrowerBorrowerPerson who is the obligor per the Note. already has in force.

501.01E	Term

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, when it expires, the policy will be renewed for at least 12 months.

501.01F	Payment of Premium

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;
- does not include any conditions that could prevent you or Fannie Mae from receiving the insurance proceeds; and
- the Modifications to Multifamily Loan and Security Agreement (Financing of Insurance Premiums) (Form 6272) was executed.

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.

501.01G	Evidence of Insurance

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
ACORD 28 – Evidence of Commercial Property Insurance (most recent version or, if applicable, the state-approved form), combined with ACORD 25 – Certificate of Liability Insurance. ACORD 75 – Insurance Binder. If an ACORD certificate is unavailable, a joint letter from the Borrower and its licensed insurance broker/agent certifying that all coverages, terms, and conditions meet the requirements. For NFIP flood insurance: the Policy Declaration page; or a copy of the signed application and proof of payment.	An original or duplicate copy of the insurance policy. 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). securing 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 : less than or equal to $10 million, the MBAMBAMortgage Bankers Association Evidence of Insurance - Commercial Property Form; or greater than $10 million, or for blanket policies with multiple layers, duplicate copies of the primary insurance policies, which should: include a letter (signed and dated on company letterhead) from an individual authorized to execute evidence of insurance on behalf of the insurance carriers issuing each policy; state that all policies follow the same terms, conditions, and exclusions as the primary policy, with any differences specified; and for NFIPNFIPProgram of flood insurance coverage and floodplain management administered under the National Flood Insurance Act. flood insurance, include the Policy Declaration page.

Acceptable Evidence of Insurance

Acceptable Temporary Evidence Forms

Acceptable Permanent Evidence Forms

ACORD 28 – Evidence of Commercial Property Insurance (most recent version or, if applicable, the state-approved form), combined with ACORD 25 – Certificate of Liability Insurance.
ACORD 75 – Insurance Binder.
If an ACORD certificate is unavailable, a joint letter from the Borrower and its licensed insurance broker/agent certifying that all coverages, terms, and conditions meet the requirements.
For NFIP flood insurance:
- the Policy Declaration page; or
- a copy of the signed application and proof of payment.

An original or duplicate copy of the insurance policy.
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). securing 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 :
- less than or equal to $10 million, the MBAMBAMortgage Bankers Association Evidence of Insurance - Commercial Property Form; or
- greater than $10 million, or for blanket policies with multiple layers, duplicate copies of the primary insurance policies, which should:
  - include a letter (signed and dated on company letterhead) from an individual authorized to execute evidence of insurance on behalf of the insurance carriers issuing each policy;
  - state that all policies follow the same terms, conditions, and exclusions as the primary policy, with any differences specified; and
  - for NFIPNFIPProgram of flood insurance coverage and floodplain management administered under the National Flood Insurance Act. flood insurance, include the Policy Declaration page.

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.

Some insurance carriers use boilerplate policies that do not change from year to year. If so, you:

should keep a specimen kit or library of such policies and endorsements; and
may place only the renewal Declarations Page in your Servicing FileServicing FileYour file for each Mortgage Loan serviced. as permanent evidence along with a list of endorsements.

501.01H	Insurance Exceptions

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	Property Insurance

501.02A	Minimum Coverage Amounts

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;
the coverage is:
- written on a Special Causes of Loss Form, or its equivalent; and
- at least
  - 100% of estimated insurable 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 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). ;
- if a blanket policy has scheduled limits per building, each building is insured to 100% of the estimated insurable value; and
- coinsurance does not exceed 90% on any coverage.

The maximum deductible:

is based on the total insurable values 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;
amounts, unless otherwise specified, apply to all insurance coverages required by:
- Part II, Chapter 5: Property and Liability Insurance, Section 501.03: Catastrophic Risk Insurance; and
- Part II, Chapter 5: Property and Liability Insurance, Section 501.04: Liability Insurance;
for the peril of wind/hail (unrelated to a catastrophic peril), must not exceed 3% 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; and
for all other perils, must comply with the following table.

If the insurable value is...	The maximum deductible amount per occurrence is...
Less than $5 million	$25,000
Equal to or greater than $5 million, but less than $50 million	$50,000
Equal to or greater than $50 million, but less than $100 million	$100,000
Equal to or greater than $100 million	$250,000

Guidance

100% coinsurance with the Agreed Value endorsement is acceptable. Renewal of the Agreed Value endorsement

is not automatic, and
must be confirmed at each renewal.

You should:

assess the Borrower’sBorrower’sPerson who is the obligor per the Note. ability to pay any deductible, even compliant ones:
- before accepting any deductibles; and
- throughout the policy term;
determine the high deductible financial exposure by considering total out of pocket expenses rather than only the difference between the
- maximum allowable deductible, and
- requested/actual deductible; and
if insurance coverage is provided on a management company’s or unrelated entities’ master property program, then only use the Borrower’sBorrower’sPerson who is the obligor per the Note. owned or related properties to determine the maximum deductible.

A margin clause:

should not be used to determine compliant property insurance limits; and
may contain provisions limiting additional coverage availability.

501.02B	Aggregate Deductibles

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 501.02A: Minimum Coverage Amounts.

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; or
- you in the Tax and InsuranceTax and InsuranceTaxes or assessments that may become a Lien on the Property and insurance premiums. escrow; 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. .

501.02C	Business Income (including Rental Value) Insurance

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, with a completed business income worksheet submitted by the Borrower'sBorrower'sPerson who is the obligor per the Note. agent/broker;
the maximum deductible for business income insurance does not exceed the greater of
- the maximum deductible for the property insurance policy, or
- a waiting period up to 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 $25 million or more includes a 90-day Extended Period of Indemnity option.

501.02D	Ordinance or Law Insurance

Requirements

You must ensure every 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
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, and cannot be rebuilt "as is", and/or
- was constructed 25 years or more before 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. .

Ordinance or law insurance is not required 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). was constructed 25 years or more before 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. , but was substantially rehabilitated (i.e., all fixtures and building materials were removed down to the studs, then rebuilt to then current building codes); or
Mortgage Loan Origination DateMortgage Loan Origination DateDate you fund a Mortgage Loan to the Borrower. was before February 3, 2014 and 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). characteristics are legally conforming, regardless of the build date.

Coverages	If ordinance or law insurance is required, you must ensure the Property has all of the following...
Coverage A	Loss of Undamaged Portion, in an amount equal to 100% of 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). insurable value, minus the damage threshold specified by the local building ordinance, or 50% of the insurable value, if the local ordinance does not specify a threshold.
Coverage B	Demolition/Debris Removal Cost equal to at least 10% of 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). insurable value.
Coverage C	Increased Cost of Construction equal to at least 10% of 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). insurable value.

Coverages

If ordinance or law insurance is required, you must ensure the Property has all of the following...

Coverage A

Loss of Undamaged Portion, in an amount equal to

100% of 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). insurable value, minus the damage threshold specified by the local building ordinance, or
50% of the insurable value, if the local ordinance does not specify a threshold.

Coverage B

Demolition/Debris Removal Cost equal to at least 10% of the insurable value.

Coverage C

Increased Cost of Construction equal to at least 10% of the insurable value.

Guidance

Examples of ordinance or laws include

bulk restrictions,
building,
zoning,
energy management,
green, or
Fair Housing Act accessibility.

Rebuilding "as is" refers to the ability to build the same square footage within the same building footprint without increasing the non-conformity, as defined by the local ordinance. You should determine the feasibility of rebuilding within any time frame required by the ordinance.

Ordinance and law insurance maybe needed, even if it is legally conforming under current zoning law, because the construction cost will likely be significantly higher due to changes in building codes and construction requirements.

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
If...	Then the required coverage is...
A Property's insurable value equals $10 million, and the damage threshold of the local building ordinance is 75%	100% of 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). insurable value, minus the damage threshold specified by the local building ordinance (i.e., $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 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). insurable value for Coverage B plus 10% of 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). insurable value for Coverage C (i.e., $2.5 million + $1 million + $1 million = $4.5 million).
Coverages B and C are combined	10% of 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). insurable value for Coverage B plus 10% of 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). insurable value for Coverage C (i.e., $1 million + $1 million = $2 million).

If law and ordinance insurance is required, the Increased Period of Restoration endorsement (Coverage D) is required. 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.

501.02E	Boiler and Machinery / Equipment / Mechanical Breakdown Insurance

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 HVAC boiler, water heater, or other vessel that is in operation and regulated by the state or municipality 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 has full boiler and machinery coverage; and
the coverage equals at least 100% of the insurable value of each building housing the equipment.

501.02F	Builder’s Risk Insurance

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.

501.02G	Fidelity Bond / Crime Insurance

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.

501.02H	Regional Perils Insurance

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 value.

Guidance

Examples of geological phenomena include

sinkhole,
mine subsidence,
volcanic eruption, and
avalanche.

501.03	Catastrophic Risk Insurance

501.03A	Generally

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 501.03: 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 Causes 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.

501.03B	Windstorm Insurance

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 windstorm insurance if the Special Causes 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. ;
coverage equals at least 100% of the insurable value;
valuation does not rely solely on Probable Maximum Loss (PML) calculations; 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 501.02A: Minimum Coverage Amounts, and
- for business income insurance, the greater of
  - the maximum deductible for the property insurance policy, or
  - an amount equal to 15 days of business income or equivalent.

Guidance

If a business income insurance deductible is stated as a total dollar amount, you should:

calculate the deductible on a per day basis; and
ensure the aggregate per day amount does not exceed 15 days of income.

For example:

If the business income requirement is $1,000,000, and the policy indicates a business income deductible of $100,000, and the maximum deductible allowed for 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 the greater of (a) $25,000, or (b) an amount equal to 15 days of income, the policy is not compliant since:

$1,000,000 divided by 365 equals $2,740 per day;
$2,740 multiplied by 15 days equals $41,095; and
$100,000 is higher than both the allowed $25,000 PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). deductible and the total 15-day calculation.

If catastrophic windstorm coverage is unavailable in the market, Fannie Mae will consider approving 1 of the following options:

a state insurance plan; or
state-managed insurance pool for
- windstorm, or
- beach erosion.

Catastrophic windstorm coverage:

includes hurricane and tropical storm damage; and
may be categorized or defined in the insurance policy using terms such as
- named storm, or
- tier one, etc.

If windstorm coverage is unavailable or is not economically feasible, you may submit the following for Pre-ReviewPre-ReviewRequirement that you obtain Fannie Mae’s approval before you Rate Lock a Mortgage Loan. :

a recommendation for a reasonable coverage amount, given the exposure and based on your knowledge 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). and BorrowerBorrowerPerson who is the obligor per the Note. ;
all compelling reasons for approving the request;
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). precise location;
blanket analysis per Part II, Chapter 5: Property and Liability Insurance, Section 501.01B: Blanket and Other Policies Covering Multiple Properties;
construction analysis; and
any financial mitigants available.

501.03C	Flood Insurance

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 ensure the coverage:

meets the mandatory purchase requirements identified in
- the Federal flood insurance statutes, and
- any applicable Federal agency rulemaking and publication;
has a waiting period no more than 15 days; and
equals at least 100% of the insurable 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, plus
- all Fixtures and Goods (as defined in the Security InstrumentSecurity InstrumentInstrument creating a lien or encumbrance on 1 or more Properties and securing the Loan Document obligations. ) located on the first 2 floors above grade and/or below grade.

You must ensure the deductible does not exceed the greatest of:

5% of 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). insurable value;
the applicable maximum amount in Part II, Chapter 5: Property and Liability Insurance, Section 501.02A: Minimum Coverage Amounts; or
for business income insurance,
- the maximum deductible for the property insurance, or
- a waiting period of up to 15 days or equivalent.

NFIP and Excess Flood Coverage
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: any of the building's Lowest Adjacent Grade (LAG) are above Base Flood Elevation (BFE); and the Borrower confirms application for a Letter of Map Amendment (LoMA)	only NFIPNFIPProgram of flood insurance coverage and floodplain management administered under the National Flood Insurance Act. insurance is required for those buildings, and the maximum term for only NFIPNFIPProgram of flood insurance coverage and floodplain management administered under the National Flood Insurance Act. insurance is 12 months.

NFIP and Excess Flood Coverage

If...

Then...

Coverage available under the NFIP is insufficient

the 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:

any of the building's Lowest Adjacent Grade (LAG) are above Base Flood Elevation (BFE); and
the Borrower confirms application for a Letter of Map Amendment (LoMA)

only NFIPNFIPProgram of flood insurance coverage and floodplain management administered under the National Flood Insurance Act. insurance is required for those buildings, and
the maximum term for only NFIPNFIPProgram of flood insurance coverage and floodplain management administered under the National Flood Insurance Act. insurance is 12 months.

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

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...
clubhouses, and pool houses.	sheds, pump houses, and storage buildings.

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;
exercise care and sound judgment when selecting the firm; and
require the determination firm, and any monitoring company, to notify you whenever there is a flood zone change.

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 501.03B: Windstorm Insurance for a deductible calculation example.

Operating Procedures

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.

501.03D	Earthquake Insurance

Requirements

coverage is at least 100% of the insurable 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 501.02A: Minimum Coverage Amounts; 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

Operating Procedures

If retrofitting is required and not completed within the agreed timeframe, you must not accept earthquake insurance as a substitute.

501.03E	Terrorism Insurance

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, unless
- it secures 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 less than $25 million, and
- you performed a risk assessment indicating no or low terrorism risk;
the coverage is at least 100% of 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). ' insurable value; and
the deductible does not exceed the greatest of:
- 20% 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 501.02A: Minimum Coverage Amounts; and
- for business income insurance,
  - the maximum deductible for the property insurance policy, or
  - a 15-day waiting period.

Guidance

You should ensure your risk assessment considers:

concentrations of risk and overall exposures;
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 relative to potential terrorist targets, such as
- tourist attractions,
- power grids,
- mass transportation facilities, and
- government buildings; and
how far reaching a terrorist event could be, for example a:
- mass transit facility directly below 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). and an airport 5 miles away; and
- biohazard or nuclear facility within 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). vicinity.

Operating Procedures

You must retain a copy of your risk assessment in your Servicing FileServicing FileYour file for each Mortgage Loan serviced. .

501.04	Liability Insurance

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 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.

501.04A	Commercial General Liability Insurance

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 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). total insurable values 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 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 Borrower’sBorrower’sPerson who is the obligor per the Note. total insurable value 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).

501.04B	Professional Liability Insurance

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 501.04A: 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.

501.04C	Workers’ Compensation Insurance

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 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). state; and
coverage equals or exceeds the:
- statutory limits for injured employees; plus
- greatest of:
  - employer’s liability limits of $1 million per occurrence for bodily injury;
  - $1 million per occurrence and $1 million aggregate for employee disease; or
  - any underlying limit required by the excess/umbrella insurance carrier.

501.04D	Directors’ and Officers’ Liability Insurance

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.

501.04E	Commercial Auto Liability Insurance

Requirements

You must ensure the BorrowerBorrowerPerson who is the obligor per the Note. has commercial auto liability insurance that:

covers any motor vehicles that are:
- owned, leased, or hired by the BorrowerBorrowerPerson who is the obligor per the Note. ; or
- used by anyone for business on behalf of the BorrowerBorrowerPerson who is the obligor per the Note. 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). ;
includes personal injury protection required 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; and
has coverage equaling the greater of
- $1 million per occurrence, or
- any underlying limit required by the excess/umbrella insurance carrier.

Guidance

As a secured real estate lender, you would not be named in a lawsuit alleging automobile negligence by an employee of the BorrowerBorrowerPerson who is the obligor per the Note. or management company. However, if a lawsuit involving negligence is successful, failure to maintain adequate insurance may result in a lien against 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). .