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;
- 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:
- 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.
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If the insurable value is... |
The maximum deductible amount per occurrence is... |
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Less than $5 million |
$25,000 |
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Equal to or greater than $5 million, but less than $50 million |
$50,000 |
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Equal to or greater than $50 million, but less than $100 million |
$100,000 |
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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 | |
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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 501.02A: 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. .
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 | |
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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... |
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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 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. |
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 | |
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| If... | Then the required coverage is... |
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A Property's insurable value equals
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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.
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 | |
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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.
| 501.02G | |
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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.
| 501.02H | |
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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 value.
Guidance
Examples of geological phenomena include
- sinkhole,
- mine subsidence,
- volcanic eruption, and
- avalanche.