501.03

Catastrophic Risk Insurance

501.03A

Generally

Requirements

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 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. , it must have the coverages required by this Section 501.03.

501.03B

Windstorm Insurance

Requirements

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 have 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. .

The coverage amount must be at least 100% of the insurable value.  This valuation may not rely solely on Probable Maximum Loss (PML) calculations.

The deductible amount may not exceed the greater of

Guidance

A state insurance plan, state-managed windstorm, or beach erosion insurance pool is acceptable for catastrophic windstorm coverage (i.e., not for non-catastrophic windstorm or other perils), if no other catastrophic windstorm coverage is available.

501.03C

Flood Insurance

Requirements

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 have flood insurance if any income-producing ImprovementsImprovementsBuildings, structures, improvements, and alterations, including the multifamily housing dwellings, now constructed or hereafter constructed or placed on the land upon which the Property is located, together with all fixtures (as defined in the Uniform Commercial Code). or any non-income producing ImprovementsImprovementsBuildings, structures, improvements, and alterations, including the multifamily housing dwellings, now constructed or hereafter constructed or placed on the land upon which the Property is located, together with all fixtures (as defined in the Uniform Commercial Code). that support amenities are located in an SFHASFHASpecial Flood Hazard Area designated by FEMA. Zone A or Zone V.

The coverage amount must be 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 constructed or hereafter constructed or placed on the land upon which the Property is located, together with all fixtures (as defined in the Uniform Commercial Code). below grade, plus
  • all Fixtures and Goods located on the first 2 floors above grade and/or below grade (as defined in the Security InstrumentSecurity InstrumentInstrument creating a lien or encumbrance on 1 or more Properties and securing the obligations under the Loan Documents. ).

The deductible amount may not exceed the greater of

If the coverage available under the NFIPNFIPProgram of flood insurance coverage and floodplain management administered under the National Flood Insurance Act. is not sufficient to meet the requirements set forth above, then the BorrowerBorrowerPerson who is the obligor per the Note. must have excess flood insurance or difference in conditions (DIC) insurance that either

  • covers the difference, up to the required coverage amount, or
  • if the required coverage amount is not economically feasible, covers an amount that you determine is reasonable, given the exposure.

During the Letter of Map Amendment (LoMA) process only NFIPNFIPProgram of flood insurance coverage and floodplain management administered under the National Flood Insurance Act. insurance is required.  The maximum term for NFIPNFIPProgram of flood insurance coverage and floodplain management administered under the National Flood Insurance Act. insurance during the LoMA process is 12 months.

If any ImprovementsImprovementsBuildings, structures, improvements, and alterations, including the multifamily housing dwellings, now constructed or hereafter constructed or placed on the land upon which the Property is located, together with all fixtures (as defined in the Uniform Commercial Code). are reclassified as within an SFHASFHASpecial Flood Hazard Area designated by FEMA. Zone A or Zone V after you deliver 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

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 constructed or hereafter constructed or placed on the land upon which the Property is located, together with all fixtures (as defined in the Uniform Commercial Code). 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. .  ImprovementsImprovementsBuildings, structures, improvements, and alterations, including the multifamily housing dwellings, now constructed or hereafter constructed or placed on the land upon which the Property is located, together with all fixtures (as defined in the Uniform Commercial Code). that support amenities include structures such as clubhouses and pool houses.  ImprovementsImprovementsBuildings, structures, improvements, and alterations, including the multifamily housing dwellings, now constructed or hereafter constructed or placed on the land upon which the Property is located, together with all fixtures (as defined in the Uniform Commercial Code). that do not support amenities are structures such as 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 constructed or hereafter constructed or placed on the land upon which the Property is located, together with all fixtures (as defined in the Uniform Commercial Code). . 

Keep in mind that conditions may change over time and flood zones may be remapped.  In certain cases, you or Fannie Mae may require flood insurance for ImprovementsImprovementsBuildings, structures, improvements, and alterations, including the multifamily housing dwellings, now constructed or hereafter constructed or placed on the land upon which the Property is located, together with all fixtures (as defined in the Uniform Commercial Code). outside of an SFHASFHASpecial Flood Hazard Area designated by FEMA. Zone A or V, but within an area designated by FEMAFEMAFederal Emergency Management Agency as Zone X or Zone D (for example, 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 subject to flooding due to storm water, or within close proximity to an SFHASFHASpecial Flood Hazard Area designated by FEMA. boundary).

When determining whether excess flood insurance or DIC insurance is economically feasible, you may consider a DSCRDSCROn an annual basis or any specified period, the ratio of Net Cash Flow to the total of:  principal, interest, and required Mezzanine Financing or Hard Preferred Equity payments. reduction of 10 or more basis points as a reasonable measure or guide. 

Before determining a lesser amount of excess flood insurance or DIC Insurance, or not requiring such coverage, you should have the BorrowerBorrowerPerson who is the obligor per the Note. provide you with at least 3 quotes or declination letters, and determine whether the BorrowerBorrowerPerson who is the obligor per the Note. is attempting to avoid purchasing coverage by applying to companies that do not write flood insurance or give artificially high quotes.  If you are provided with a combination of quotes and declinations, quotes should be used to determine feasibility of coverage, and a limit of coverage that is economically feasible should be secured.

An acceptable deductible for DIC insurance is the coverage limit of the underlying NFIPNFIPProgram of flood insurance coverage and floodplain management administered under the National Flood Insurance Act. policy. 

You should obtain flood zone determinations from qualified third-party flood-zone determination firms, and exercise care and sound judgment when selecting the firm.  You should require the determination firm, and any monitoring company (if different), to

  • notify you whenever flood insurance is or becomes required, and
  • continue monitoring after any servicing transfer.

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.

You are required to complete the most recent version of the Standard Flood Hazard Determination form issued by FEMAFEMAFederal Emergency Management Agency to determine whether any of the ImprovementsImprovementsBuildings, structures, improvements, and alterations, including the multifamily housing dwellings, now constructed or hereafter constructed or placed on the land upon which the Property is located, together with all fixtures (as defined in the Uniform Commercial Code). are located in an SFHASFHASpecial Flood Hazard Area designated by FEMA. .  You must keep a completed copy of this form in your Servicing FileServicing FileYour file for each Mortgage Loan serviced. , including a signed copy of the Notice to Borrower of Special Flood Hazard and Federal Assistance (included in the Flood Determination Certificate). 

If you permitted a reduction in the amount of excess flood insurance or DIC insurance, your analysis and related documentation supporting the economic feasibility and the amount of the reduction must be

  • included in your Servicing FileServicing FileYour file for each Mortgage Loan serviced. , and
  • submitted via 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. .
501.03D

Earthquake Insurance

Requirements

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 have earthquake insurance if required by Fannie Mae based on the Seismic Risk Assessment.

The coverage amount must be at least 100% of the insurable value.

The deductible amount may not exceed the greater of

501.03E

Terrorism Insurance

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 have 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 of less than $25 million, and
  • you performed a risk assessment, and it indicated no or low terrorism risk.

The coverage amount must be at least 100% of the insurable value of the ImprovementsImprovementsBuildings, structures, improvements, and alterations, including the multifamily housing dwellings, now constructed or hereafter constructed or placed on the land upon which the Property is located, together with all fixtures (as defined in the Uniform Commercial Code). .

The deductible amount may not exceed the greater of

Guidance

Your risk assessment should consider 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). location in relation to potential terrorist targets, such as tourist attractions, mass transportation facilities, urban areas, and government buildings.  You should also consider concentrations of risk and overall exposures.

Operating Procedures

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