501.02
| 501.02A | |
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Requirements
You must ensure:
- each PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). has property insurance throughout the Mortgage LoanMortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents, or a mortgage debt obligation with a Fannie Mae credit enhancement. term; and
- the coverage is:
- written using Special Peril Coverage;
- at least
- 100% of estimated Insurable ValueInsurable ValueFor any Property, the estimate of the maximum dollar amount needed to replace, repair, or reproduce the Property, but excluding any land value. for a single-building PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). , and
- 90% of estimated Insurable ValueInsurable ValueFor any Property, the estimate of the maximum dollar amount needed to replace, repair, or reproduce the Property, but excluding any land value. for a multiple-building PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). ; and
- equal to 100% of the current Insurable ValueInsurable ValueFor any Property, the estimate of the maximum dollar amount needed to replace, repair, or reproduce the Property, but excluding any land value. if any level of coinsurance is permitted.
Guidance
A margin clause:
- should not be used to determine compliant property insurance limits; and
- may contain provisions limiting additional coverage availability.
A Property Damage Insurance policy should contain an Inflation Guard endorsement that annually adjusts the insurance amount based on the inflation rate in the Property’sProperty’sMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). geographic area.
| 501.02B | |
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Requirements
The maximum deductible amounts:
- apply to all insurance coverages required by:
- must comply with the following tables.
| Maximum Deductibles | |
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| For the peril of... | The maximum deductible must not exceed... |
| Wind/Hail (unrelated to a catastrophic peril) |
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| Named Storm |
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| Maximum Deductibles for All Other Perils | |
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| Specific Limit Insurance Policy | |
| For Policies... | The maximum deductible amount per occurrence based on the Total Insurable Value is... |
| Less than $10 million | $50,000 |
| $10 million or more | $100,000 |
| Blanket Deductibles | |
| For Blanket Policies with a... | The maximum deductible amount per occurrence is... |
| Blanket limit | $250,000 |
| Specific limit |
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| Expanded Deductibles1 | |
| For Policies other than NFIP... | The maximum deductible amount per occurrence based on the Total Insurable Value is... |
| Less than $10 million | $100,000 |
| $10 million or more | $150,000 |
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1 Expanded deductibles must meet all the following:
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Guidance
Before accepting any deductibles, you should:
- assess the Borrower’sBorrower’sPerson who is the obligor per the Note. ability to pay the deductible throughout the policy term;
- determine the high deductible financial exposure by considering total paid expenses rather than only the difference between the
- maximum allowable deductible, and
- requested/actual deductible; and
- only use the Borrower’sBorrower’sPerson who is the obligor per the Note. owned or related properties to determine the maximum deductible if insurance coverage is provided on a management company’s or unrelated entities’ master property program.
| 501.02C | |
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Guidance
You may accept a Property and Liability policy that includes aggregate deductibles. The aggregate deductible may be higher than the maximum deductible required per Part II, Chapter 5: Property and Liability Insurance, Section 501.02B: Deductibles.
Requirements
If you accept a Property and Liability policy that includes aggregate deductibles, you must:
- confirm the aggregate deductible amount is fully funded and held by:
- the BorrowerBorrowerPerson who is the obligor per the Note. in a segregated bank account;
- you in the Tax and InsuranceTax and InsuranceTaxes or assessments that may become a Lien on the Property and insurance premiums. escrow; or
- a third party for the Borrower'sBorrower'sPerson who is the obligor per the Note. benefit; and
- require any claim checks to:
- list you as payee c/o Fannie Mae; and
- be considered insurance loss proceeds per the Loan DocumentsLoan DocumentsAll Fannie Mae-approved documents evidencing, securing, or guaranteeing the Mortgage Loan. .
Requirements
You must ensure:
- each PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the
fee simple or Leasehold interest,
Improvements, and
personal property (per the Uniform Commercial Code).
has business income insurance (including rental value insurance), for all required coverages, including
- ordinance or law (Coverage D),
- windstorm,
- flood,
- earthquake, and
- terrorism, etc.;
- coverage is based on:
- Actual Loss Sustained for 12 months; or
- the most recent annual reported (or annualized if annual financial are unavailable):
- EGIEGIOn an annual basis or any specified period, the total of Net Rental Income plus other income per Part II, Chapter 2: Valuation and Income, Section 203: Income Analysis and the applicable products and features in Part III. ; or
- NOINOIAnnually or for any specified period, the total Effective Gross Income minus the Property’s operating expenses. plus continuing expenses;
- the maximum deductible for business income insurance does not exceed:
- the maximum deductible for the property insurance policy, or
- a waiting period of
- 3 days, or
- 72 hours; and
- coverage for a Mortgage LoanMortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents, or a mortgage debt obligation with a Fannie Mae credit enhancement. with a UPBUPBUnpaid Principal Balance of $35 million or more includes a 90-day Extended Period of Indemnity option.
| 501.02E | |
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Requirements
If the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). is non-conforming under any current land use law or ordinance, you must ensure the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). has ordinance or law insurance:
- for all perils, even if insured on a standalone policy; and
- that includes the Increased Period of Restoration (Coverage D) endorsement if any buildings are 5 stories or more.
| Coverages | If ordinance or law insurance is required, you must ensure the Property has all of the following... |
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| Coverage A |
Loss of Undamaged Portion, in an amount equal to
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| Coverage B | Demolition/Debris Removal Cost equal to at least 10% of the Insurable ValueInsurable ValueFor any Property, the estimate of the maximum dollar amount needed to replace, repair, or reproduce the Property, but excluding any land value. . |
| Coverage C | Increased Cost of Construction equal to at least 10% of the Insurable ValueInsurable ValueFor any Property, the estimate of the maximum dollar amount needed to replace, repair, or reproduce the Property, but excluding any land value. . |
Guidance
Examples of ordinance or laws include
- bulk restrictions,
- building,
- zoning,
- energy management,
- green, or
- Fair Housing Act accessibility.
Some municipalities have no zoning districts. This primarily refers to use. Usually, buildings are still subject to building and safety codes; therefore, coverage is required.
| Required Limits Example | |
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| If... | Then the required coverage is... |
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the Insurable Value equals
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100% of the Insurable ValueInsurable ValueFor any Property, the estimate of the maximum dollar amount needed to replace, repair, or reproduce the Property, but excluding any land value. , minus the damage threshold specified by the local building ordinance (e.g., $10 million - $7.5 million = $2.5 million for Coverage A). |
| Coverages A, B, and C are combined | the Coverage A amount plus 10% of the Insurable ValueInsurable ValueFor any Property, the estimate of the maximum dollar amount needed to replace, repair, or reproduce the Property, but excluding any land value. for Coverage B plus 10% of the Insurable ValueInsurable ValueFor any Property, the estimate of the maximum dollar amount needed to replace, repair, or reproduce the Property, but excluding any land value. for Coverage C (e.g., $2.5 million + $1 million + $1 million = $4.5 million). |
| Coverages B and C are combined | 10% of the Insurable ValueInsurable ValueFor any Property, the estimate of the maximum dollar amount needed to replace, repair, or reproduce the Property, but excluding any land value. for Coverage B plus 10% of the Insurable ValueInsurable ValueFor any Property, the estimate of the maximum dollar amount needed to replace, repair, or reproduce the Property, but excluding any land value. for Coverage C (e.g., $1 million + $1 million = $2 million). |
Coverage D for law and ordinance insurance:
- extends the business:
- income and extra expense coverage; and
- additional time to restore operations when delayed due to enforcement of building or zoning laws; and
- is paid from the Property’sProperty’sMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). business income/rent loss coverage.
Without this Increased Period of Restoration endorsement, business income coverage does not include any “increased period” that may be necessary due to enforcement of an ordinance or law.
When evaluating this coverage you should ensure the business income/rent loss limit is adequate to reflect the increased period of restoration.
Requirements
You must ensure:
- a PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). with any high-pressure, centralized HVACS boiler, water heater, or other vessel in operation and regulated by the Property’sProperty’sMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). state or municipality has full equipment breakdown or boiler and machinery insurance;
- the coverage equals at least 100% of the Insurable ValueInsurable ValueFor any Property, the estimate of the maximum dollar amount needed to replace, repair, or reproduce the Property, but excluding any land value. of each building housing the equipment; and
- if equipment breakdown or boiler and machinery insurance is provided by a carrier other than the carrier providing the property damage policy, both policies include a Joint Loss AgreementJoint Loss AgreementProvision used when more than 1 insurer gives the same property coverage to temporarily allocate losses to ensure prompt payment to the policyholder. For covered losses, insurers pay the policyholder: any undisputed amounts; and all remaining sums in equal shares and insurers arbitrate….
| 501.02G | |
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Requirements
You must ensure:
- if property insurance coverage is excluded during construction or significant renovation or restoration, the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). has builder's risk insurance during such activity; and
- the coverage equals at least 100% of the completed value, on a non-reporting basis.
| 501.02H | |
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Requirements
You must ensure:
- each PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). owned by a Cooperative OrganizationCooperative OrganizationCorporation or legal entity where each shareholder or equity owner is granted the right to occupy a unit in a multifamily residential property under a proprietary lease or occupancy agreement. has fidelity bond/crime insurance in an amount covering scheduled Cooperative Maintenance FeesCooperative Maintenance FeesPeriodic fee assessed each shareholder or owner of a Cooperative Organization to fund costs and expenses associated with ongoing operations of the Cooperative Property. for at least 3 months; and
- the fidelity bond/crime insurance deductible does not exceed $25,000.
| 501.02I | |
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Requirements
You must ensure:
- if a PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). is in an area prone to geological phenomena, the property insurance coverage includes those phenomena; and
- the coverage equals 100% of the Insurable ValueInsurable ValueFor any Property, the estimate of the maximum dollar amount needed to replace, repair, or reproduce the Property, but excluding any land value. .
Guidance
Examples of geological phenomena include
- sinkhole,
- mine subsidence,
- volcanic eruption, and
- avalanche.