501.03

Catastrophic Risk Insurance

501.03A

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 501.03: 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 Causes 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.
501.03B

Windstorm 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 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. ;
  • 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. ;
  • valuation does not rely solely on Probable Maximum Loss (PML) calculations; and
  • deductible does not exceed the greatest of

Guidance

If a business income insurance deductible is stated as a total dollar amount, you should:

  • calculate the deductible on a per day basis; and 
  • ensure the aggregate per day amount does not exceed 15 days of income.

For example:

If the business income requirement is $1,000,000, and the policy indicates a business income deductible of $100,000, and the maximum deductible allowed for 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 the greater of (a) $25,000, or (b) an amount equal to 15 days of income, the policy is not compliant since:

  • $1,000,000 divided by 365 equals $2,740 per day;
  • $2,740 multiplied by 15 days equals $41,095; and
  • $100,000 is higher than both the allowed $25,000 PropertyPropertyMultifamily residential real estate securing the Mortgage Loan, including the fee simple or Leasehold interest, Improvements, and personal property (per the Uniform Commercial Code). deductible and the total 15-day calculation.

If catastrophic windstorm coverage is unavailable in the market, Fannie Mae will consider approving 1 of the following options:

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

Catastrophic windstorm coverage:

  • includes hurricane and tropical storm damage; and
  • may be categorized or defined in the insurance policy using terms such as
    • named storm, or
    • tier one, etc.

If windstorm coverage is unavailable or is not economically feasible, you may submit the following for Pre-ReviewPre-ReviewRequirement that you obtain Fannie Mae’s approval before you Rate Lock a Mortgage Loan. :

  • a recommendation for a reasonable coverage amount, given the exposure and based on your knowledge 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). and BorrowerBorrowerPerson who is the obligor per the Note. ;
  • all compelling reasons for approving the request;
  • 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). precise location;
  • blanket analysis per Part II, Chapter 5: Property and Liability Insurance, Section 501.01B: Blanket and Other Policies Covering Multiple Properties;
  • construction analysis; and
  • any financial mitigants available.
501.03C

Flood 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 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 ensure the coverage:

  • meets the mandatory purchase requirements identified in
    • the Federal flood insurance statutes, and
    • any applicable Federal agency rulemaking and publication;
  • has a waiting period no more than 15 days; 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, plus
    • all Fixtures and Goods (as defined in the Security InstrumentSecurity InstrumentInstrument creating a lien or encumbrance on 1 or more Properties and securing the Loan Document obligations. ) located on the first 2 floors above grade and/or below grade.

You must ensure the deductible does not exceed the greatest of:

NFIP and Excess Flood Coverage
If... Then...
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.

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

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; 
  • exercise care and sound judgment when selecting the firm; and
  • require the determination firm, and any monitoring company, to notify you whenever there is a flood zone change.

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 501.03B: Windstorm Insurance for a deductible calculation example.

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.
501.03D

Earthquake 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 earthquake insurance if required by Fannie Mae.  For any required coverage, ensure 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. ;
  • waiting period is no more than 15 days; and
  • deductible does not exceed the greatest of:

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 501.03B: Windstorm 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.

501.03E

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, 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 less than $25 million, and
    • you performed a risk assessment indicating no or low terrorism risk;
  • 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
  • the deductible does not exceed the greatest of:

Guidance

You should ensure your risk assessment considers:

  • concentrations of risk and overall exposures;
  • 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). location relative to potential terrorist targets, such as
    • tourist attractions,
    • power grids,
    • mass transportation facilities, and
    • government buildings; and
  • how far reaching a terrorist event could be, for example a:
    • mass transit facility directly below 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). and an airport 5 miles away; and
    • biohazard or nuclear facility within 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). vicinity.

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 501.03B: Windstorm Insurance for a deductible calculation example.

Operating Procedures

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