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

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). must be covered by compliant property insurance and liability insurance for the term of 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. .  If the BorrowerBorrowerPerson who is the obligor per the Note. fails to maintain any required insurance on 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). , you must obtain the required coverage.

All insurance policies must:

  • list the BorrowerBorrowerPerson who is the obligor per the Note. as a named insured;
  • be written on a per occurrence basis, except for earthquake insurance and professional liability Insurance, which may be written on a per occurrence or claims-made basis;
  • include a provision requiring the carrier to notify each 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, unless the Loan DocumentsLoan DocumentsAll Fannie Mae-approved documents evidencing, securing, or guaranteeing the Mortgage Loan. expressly require the BorrowerBorrowerPerson who is the obligor per the Note. to notify the LenderLenderPerson Fannie Mae approved to sell or service Mortgage Loans. promptly of any notice of cancellation it receives;
  • except for professional liability insurance, name Fannie Mae as Additional Insured on all liability insurance and excess/umbrella insurance; and
  • contain a mortgagee clause and loss payable clause for the benefit of Fannie Mae, its successors, and assigns.

All property insurance policies must use ReplacementReplacementCapital item replacements and major maintenance needs identified by the Property Condition Assessment or otherwise required. Cost valuation, however, coverage for roofs may use Actual Cash Value or ReplacementReplacementCapital item replacements and major maintenance needs identified by the Property Condition Assessment or otherwise required. Cost valuation.

Guidance

All requirements apply to the review you perform before closing as well as to the Servicer’sServicer’sPrimary Person servicing the Mortgage Loan, including the originator, seller, or a third party. annual compliance review.

You are expected to obtain the advance cancellation notice for the benefit of each Mortgagee and Additional Insured from the insurance carriers whenever possible.  When that is not possible, you should ensure that the final Loan DocumentsLoan DocumentsAll Fannie Mae-approved documents evidencing, securing, or guaranteeing the Mortgage Loan. have not been modified in any manner that limits

  • the Borrower’sBorrower’sPerson who is the obligor per the Note. obligation to provide prompt notice to the LenderLenderPerson Fannie Mae approved to sell or service Mortgage Loans. 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. as a result of any failure to maintain all insurance coverages required by the Loan DocumentsLoan DocumentsAll Fannie Mae-approved documents evidencing, securing, or guaranteeing the Mortgage Loan. .  

Below is an acceptable mortgagee clause.

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 you are not able to obtain the advance cancellation notice from any insurance carrier, you must retain evidence of your attempts to obtain such notice provisions in your Servicing FileServicing FileYour file for each Mortgage Loan serviced. .

501.01B

Blanket and Other Policies Covering Multiple Properties

Requirements

The coverage provided by a blanket policy must be as good as, or better than, a single property insurance policy.  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). must be listed and identified in the policy or associated schedules.

Guidance

A blanket policy includes

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

Blanket policies are acceptable as long as

  • 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 the following:

  • Are the required coverages adequate for the subject property or properties?
  • 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. , 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:

  • a significant savings in premium when a BorrowerBorrowerPerson who is the obligor per the Note. adds 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). to an existing policy; or
  • 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 are expected to evaluate the insurance administrator, considering factors such as the acceptability of its business practices, possible payment of claim by the administrator, years in business, etc.  This evaluation is in addition to the other analysis expected for blanket policies.

Operating Procedures

You must document your analysis of any blanket policy in your Servicing FileServicing FileYour file for each Mortgage Loan serviced. .

501.01C

Insurance Carrier Rating

Requirements

All property and liability insurance carriers for new policies must:

  • if rated by A.M. Best Company, have a 
    • general policyholder rating of A- or better, and
    • financial size category of VI or better; or
  • if rated by Demotech, Inc., have a 
    • Financial Stability Rating of A or better, and
    • policyholder surplus of at least $40 million.

For any existing insurance policy (at origination or afterward), the carrier must: 

  • if rated by A.M. Best Company, have a
    • general policyholder rating of B++ or better, and
    • comply with the rating requirements for new policies at renewal; or
  • If rated by Demotech, Inc., comply with the rating requirements for new policies.

This rating requirement does not apply to the following coverages:

  • state wind pools or state funds, if they are the only coverages that can be obtained 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). ; or
  • flood insurance issued by the National Flood Insurance ProgramNational Flood Insurance ProgramProgram of flood insurance coverage and floodplain management administered under the National Flood Insurance Act. (NFIP) or written by companies approved under the NFIPNFIPProgram of flood insurance coverage and floodplain management administered under the National Flood Insurance Act. ’s Write Your Own program.

Per the Loan DocumentsLoan DocumentsAll Fannie Mae-approved documents evidencing, securing, or guaranteeing the Mortgage Loan. , you must require the BorrowerBorrowerPerson who is the obligor per the Note. to immediately obtain replacement coverage with a compliant carrier, even if the policy has not yet expired, if a carrier is downgraded below

  • B++, if rated by A.M. Best Company, or
  • A, if rated by Demotech, Inc.

Guidance

A new policy is one that is not already in force, and is 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.

Operating Procedures

If a carrier providing an existing insurance policy has an A.M. Best Company rating below A-, you must retain evidence of the insurance carrier’s rating in your Servicing FileServicing FileYour file for each Mortgage Loan serviced. until the policy is renewed.  You must also monitor it on a quarterly basis to confirm that the rating is not downgraded below B++.

501.01D

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; and
  • the shorter-term is not because of non-renewal or cancellation by the carrier.
501.01E

Payment of Premium

Requirements

Premiums for all required insurance policies must either be:

  • paid in full annually; or
  • payable in installments, for which you have receipts confirming timely payment.

Premium financing is permitted 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.  If the BorrowerBorrowerPerson who is the obligor per the Note. finances premiums, you must review a copy of the financing agreement and confirm that timely payment of each premium has been made.

Guidance

You should attempt to reinstate the annual payment of premiums at renewal of any policy.

Any financing agreement should include a requirement that you receive a notice of cancellation for any nonpayment of premium.

Operating Procedures

For 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. where no insurance escrows are being collected, you must obtain evidence annually that all policies have been paid in full.

If the BorrowerBorrowerPerson who is the obligor per the Note. finances premiums, you must retain a copy of the financing agreement in your Servicing FileServicing FileYour file for each Mortgage Loan serviced. .  You must also keep receipts confirming timely payments.

501.01F

Evidence of Insurance

Requirements

You must have temporary or permanent evidence of insurance at the closing of 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. and by each renewal date.

You must have permanent evidence of insurance within 90 days of delivering 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. to Fannie Mae and each renewal date.

Guidance

For temporary evidence of insurance, the following forms are acceptable:

  • 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;
  • MBAMBAMortgage Bankers Association Evidence of Insurance – Commercial Property Form; and
  • if an ACORD certificate is not available, a joint letter from the BorrowerBorrowerPerson who is the obligor per the Note. and its licensed insurance broker/agent certifying that all coverages, terms, and conditions meet the requirements.

For permanent evidence of insurance, the following forms are acceptable:

  • An original or duplicate copy of the insurance policy.
  • For PropertiesPropertiesMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). securing 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. with a UPBUPBUnpaid Principal Balance of $10 million or less, the MBAMBAMortgage Bankers Association Evidence of Insurance – Commercial Property Form.
  • For PropertiesPropertiesMultifamily 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 in excess of $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; and
    • state that all policies follow the same terms, conditions, and exclusions as the primary policy, with any differences specified.
  • For NFIPNFIPProgram of flood insurance coverage and floodplain management administered under the National Flood Insurance Act. flood insurance, 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.

If an MBAMBAMortgage Bankers Association Evidence of Insurance - Commercial Property Form is used, it should:

  • be the most recent version or, if applicable, the state-approved form;
  • be completed in its entirety;
  • have an original signature of an individual authorized to execute the Evidence of Insurance on behalf of the insurance carriers issuing each policy; and
  • in states where the form is filed and approved, be on the appropriate state form.

Some insurance carriers use boilerplate policies that do not change from year to year.  In such cases, 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. 

Operating Procedures

Permanent evidence must be retained in your Servicing FileServicing FileYour file for each Mortgage Loan serviced. .  Policies must be collected annually.

501.01G

Insurance Compliance and Data

Operating Procedures

You must complete an annual insurance compliance checklist, including the following information for all insurance coverages, and place it in your Servicing FileServicing FileYour file for each Mortgage Loan serviced. :

  • name of carrier, all insured parties, and the BorrowerBorrowerPerson who is the obligor per the Note. ;
  • coverage amount;
  • deductible amount(s);
  • policy term;
  • description of property insured; and
  • coinsurance percentage, if applicable.
501.01H

Post Closing Insurance Exceptions

Requirements

You must determine compliance with this Section on an annual basis.  Any request for an exception to the insurance requirements after origination and delivery of 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. must be submitted on the Multifamily Exception Review Form – Insurance (Form 4638) 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. .  All supporting documentation must be included with the submission.

Guidance

Insurance exceptions granted by Fannie Mae are for the entire term of 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. , unless otherwise specified in the approval.