Section 502

Catastrophic Risk Insurance

502.01	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 502: Catastrophic Risk Insurance for perils related to catastrophic loss if the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). is in an area prone to Catastrophic EventsCatastrophic EventsNatural or man-made hazard resulting in an event of substantial extent causing significant physical damage or destruction, loss of life, or drastic change to the natural environment, such as earthquake, flood, terrorist attack, or windstorm. ;
the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). has a separate insurance policy if the Special Peril Coverage of Loss Form excludes a Catastrophic EventCatastrophic EventNatural or man-made hazard resulting in an event of substantial extent causing significant physical damage or destruction, loss of life, or drastic change to the natural environment, such as earthquake, flood, terrorist attack, or windstorm. coverage that is required; and
if ordinance or law coverage is required on the property policy, then coverage is obtained for catastrophic losses if the catastrophic peril is insured on a standalone policy.

502.02	Named Storm 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 named storm insurance if the:
- Special Peril Coverage of Loss Form excludes any type of wind-related Catastrophic EventCatastrophic EventNatural or man-made hazard resulting in an event of substantial extent causing significant physical damage or destruction, loss of life, or drastic change to the natural environment, such as earthquake, flood, terrorist attack, or windstorm. ; and
- PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). is located in a TierTierTier 1, Tier 2, Tier 3, or Tier 4 per the Multifamily Underwriting Standards (Form 4660). I named storm county, as defined by the insurer;
the coverage equals at least 90% of the Total Insurable ValueTotal Insurable ValueFor any Property, the sum of the full value of the insured's: covered Property; Property-related business income values; and any other covered Property interests.
- on a standalone policy, and
- of the largest individual property on a Blanket PolicyBlanket PolicyInsurance policy providing coverage for multiple properties and/or multiple perils. ;
if the named storm policy does not cover costs due to flooding from storm surge, the BorrowerBorrowerPerson who is the obligor per the Note. maintains flood insurance for any buildings located in the 500-year flood zone equal to the maximum coverage available through NFIPNFIPProgram of flood insurance coverage and floodplain management administered under the National Flood Insurance Act. policies or their equivalent;
the valuation does not rely solely on Probable Maximum Loss (PML) calculations; and
the deductible does not exceed the greatest of:
- 7.5% of the Insurable ValueInsurable ValueFor any Property, the estimate of the maximum dollar amount needed to replace, repair, or reproduce the Property, but excluding any land value. ;
- the applicable maximum amount per Part II, Chapter 5: Property and Liability Insurance, Section 501.02B: Deductibles; and
- for business income insurance:
  - when expressed as a number of days, 15 days; or
  - when expressed as a dollar amount, $100,000.

Guidance

If named storm coverage is unavailable, Fannie Mae will consider approving 1 of the following options:

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

502.03	Flood Insurance

502.03A	Generally

Operating Procedures

To determine if any buildings located at the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). are, or will be, fully or partially located in an SFHASFHASpecial Flood Hazard Area designated by FEMA. , you must:

use the FEMAFEMAFederal Emergency Management Agency Standard Flood Hazard Determination Form (SFHDF);
evaluate all PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). structures when ordering the SFHDF;
provide the vendor supplemental PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). information including the
- legal description, and
- survey or site plan;
obtain an image overlay from Flood Vendor;
ensure the resulting Flood Zone Determination (FZD) form, and any subsequent FZD forms, are effective for the entire Mortgage LoanMortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents, or a mortgage debt obligation with a Fannie Mae credit enhancement. term; and
retain a signed copy in your Servicing FileServicing FileYour file for each Mortgage Loan serviced. .

Requirements

You must ensure the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). has flood insurance if:

any income-producing ImprovementsImprovementsBuildings, structures, improvements, and alterations, including the multifamily housing dwellings, now or hereafter constructed or placed on the Property, including all fixtures (as defined in the UCC). or any non-income producing ImprovementsImprovementsBuildings, structures, improvements, and alterations, including the multifamily housing dwellings, now or hereafter constructed or placed on the Property, including all fixtures (as defined in the UCC). that support amenities are in an SFHA ZoneSFHA ZoneSpecial Flood Hazard Area designated by FEMA. starting with the letter A or V; or
the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). is located within a Coastal Barrier Resources System (CBRS) or Otherwise Protected Area (OPA), regardless of if the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). is located in an SFHASFHASpecial Flood Hazard Area designated by FEMA. .

A Mortgage LoanMortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents, or a mortgage debt obligation with a Fannie Mae credit enhancement. is ineligible for purchase if the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). is in:

an SFHASFHASpecial Flood Hazard Area designated by FEMA. ; and
a community that does not participate in the NFIPNFIPProgram of flood insurance coverage and floodplain management administered under the National Flood Insurance Act. .

You must:

complete the most recent version of the Standard Flood Hazard Determination Form issued by FEMAFEMAFederal Emergency Management Agency ;
retain in your Servicing FileServicing FileYour file for each Mortgage Loan serviced. a
- copy of the form, and
- signed copy of Notice to Borrower of Special Flood Hazard and Federal Assistance;
require the determination firm, and any monitoring company, to notify you whenever there is a flood zone change; and
ensure the coverage:
- meets the minimum mandatory purchase requirements per:
  - the following Federal flood insurance statutes, as amended and/or restated from time to time, including the:
    - National Flood Insurance Act of 1968 (1968 Act);
    - Biggert-Waters Flood Insurance Reform Act of 2012 (Biggert Waters);
    - Flood Disaster Protection Act of 1973 (FDPA); and
    - Homeowner Flood Insurance Affordability Act of 2014; and
  - any applicable Federal agency rulemaking and publication; and
- equals at least 100% of the Insurable ValueInsurable ValueFor any Property, the estimate of the maximum dollar amount needed to replace, repair, or reproduce the Property, but excluding any land value. of
  - the first 2 floors above grade, and
  - any ImprovementsImprovementsBuildings, structures, improvements, and alterations, including the multifamily housing dwellings, now or hereafter constructed or placed on the Property, including all fixtures (as defined in the UCC). below grade;
require contents coverage for BorrowerBorrowerPerson who is the obligor per the Note. -owned personal property;
ensure you have an established process to obtain an inventory and the Insurable ValueInsurable ValueFor any Property, the estimate of the maximum dollar amount needed to replace, repair, or reproduce the Property, but excluding any land value. of BorrowerBorrowerPerson who is the obligor per the Note. -owned contents or business personal property within buildings located in SFHAsSFHAsSpecial Flood Hazard Area designated by FEMA. to determine required coverage; and
retain documentation of the presence or absence of BorrowerBorrowerPerson who is the obligor per the Note. -owned contents or business personal property within the building and in your Servicing FileServicing FileYour file for each Mortgage Loan serviced. .

Guidance

Generally, contents or business personal property:

includes equipment and inventory
- owned by the BorrowerBorrowerPerson who is the obligor per the Note. , and
- used in connection with Property’sProperty’sMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code).
  - ownership,
  - management, or
  - operation; and
does not otherwise constitute fixtures.

502.03B	Deductibles

Requirements

You must comply with the following tables.

Flood Maximum Deductibles
Business income insurance	deductible does not exceed: when expressed as a number of days, 15 days; or when expressed as a dollar amount, $100,000.
NFIP policies	maximum deductible available under NFIPNFIPProgram of flood insurance coverage and floodplain management administered under the National Flood Insurance Act. is acceptable.

Flood Maximum Deductibles

For...

You must ensure the...

Business income insurance

deductible does not exceed:

when expressed as a number of days, 15 days; or
when expressed as a dollar amount, $100,000.

NFIP policies

maximum deductible available under is acceptable.

Private Flood Policy Maximum Deductibles
If the Property has...	Then maximum deductible per occurrence is...
10 or fewer buildings in SFHA	$50,000
More than 10 buildings in SFHA	$500,000

502.03C	NFIP Policy

Requirements

You must comply with the following table.

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

To prevent the BorrowerBorrowerPerson who is the obligor per the Note. from paying for more coverage than an NFIPNFIPProgram of flood insurance coverage and floodplain management administered under the National Flood Insurance Act. policy would pay out, you should evaluate the extent of recovery allowed under the NFIPNFIPProgram of flood insurance coverage and floodplain management administered under the National Flood Insurance Act. policy for the type of building being insured.

If all buildings do not require flood insurance, but the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). ingress is located in an SFHASFHASpecial Flood Hazard Area designated by FEMA. , you should consider requiring business income insurance for excess flood to cover all buildings.

Flood insurance is not required if only unimproved portions of the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). , or non-income producing ImprovementsImprovementsBuildings, structures, improvements, and alterations, including the multifamily housing dwellings, now or hereafter constructed or placed on the Property, including all fixtures (as defined in the UCC). that do not support amenities at the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). , are located in an SFHASFHASpecial Flood Hazard Area designated by FEMA. .

Non-Income Producing Improvements
Supporting amenities include...	Not supporting amenities include...
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; and
exercise care and sound judgment when selecting the firm.

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.

502.03D	Private Flood Policy

Requirements

You must ensure a private flood insurance policy:

is written on a Replacement Cost Valuation basis without any deduction for depreciation; and
provides coverage and terms as broad as or better than the coverage and terms provided under a standard flood insurance policy issued under the NFIPNFIPProgram of flood insurance coverage and floodplain management administered under the National Flood Insurance Act. .

502.04	Earthquake Insurance

Requirements

coverage is at least 100% of the Insurable ValueInsurable ValueFor any Property, the estimate of the maximum dollar amount needed to replace, repair, or reproduce the Property, but excluding any land value. ;
deductible does not exceed the greater of:
- 7.5% of the collateral's Total Insurable ValueTotal Insurable ValueFor any Property, the sum of the full value of the insured's: covered Property; Property-related business income values; and any other covered Property interests. ; or
- the applicable maximum amount per Part II, Chapter 5: Property and Liability Insurance, Section 501.02B: Deductibles; and
business income insurance:
- waiting period does not exceed the greatest of:
  - when expressed as a number of days, 15 days;
  - when expressed as a dollar amount, $100,000; or
  - the applicable maximum amount per Part II, Chapter 5: Property and Liability Insurance, Section 501.02A: Minimum Coverage Amounts; and
- 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.

Earthquake insurance may be required while the PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). is being retrofitted.

Guidance

For business income insurance deductible, if a dollar amount is indicated, you should calculate the per day amount ensuring the deductible does not exceed the 15-day total amount allowed. See Part II, Chapter 5: Property and Liability Insurance, Section 502.02: Named Storm Insurance for a deductible calculation example.

Operating Procedures

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

502.05	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;
exceptions are only made to professional liability insurance where terrorism coverage is not required;
the coverage is at least 100% of the Insurable ValueInsurable ValueFor any Property, the estimate of the maximum dollar amount needed to replace, repair, or reproduce the Property, but excluding any land value. attributed only to the ImprovementsImprovementsBuildings, structures, improvements, and alterations, including the multifamily housing dwellings, now or hereafter constructed or placed on the Property, including all fixtures (as defined in the UCC). ; and
for business income insurance, the deductible does not exceed:
- when expressed as a number of days, 15 days; or
- when expressed as a dollar amount, $100,000.