Selling Guide

Published October 2, 2019

A3-5-01: Fidelity Bond and Errors and Omissions Coverage Provisions (07/25/2017)

This topic contains information on fidelity bond and errors and omissions insurance coverage provisions.

Fidelity Bond and Errors and Omissions Coverage Provisions

A seller/servicer must have a blanket fidelity bond and an errors and omissions insurance policy in effect at all times in an amount sufficient to meet Fannie Mae’s minimum coverage requirements described in A3-5-02, Fidelity Bond Policy Requirements and A3-5-03, Errors and Omissions Policy Requirements.

A seller/servicer that is a subsidiary of another institution may use its parent’s fidelity bond and errors and omissions insurance policy as long as it is named as a joint insured under the bond or policy. However, if the parent’s deductible amount exceeds the maximum deductible that Fannie Mae allows as required in A3-5-02, Fidelity Bond Policy Requirements, the seller/servicer must obtain a fidelity bond in its own name for an amount that is at least equal to the amount of the parent’s deductible, with a separate deductible amount that is no higher than the maximum amount Fannie Mae allows for the seller/servicer’s coverage.

Fannie Mae will accept coverage underwritten by an insurer that is affiliated with Lloyd’s of London.

Fannie Mae will consider the use of captive reinsurance arrangements on a case-by-case basis.

Each fidelity bond and errors and omissions insurance policy must include the following provisions:

  • Fannie Mae is named as a “loss payee” on drafts the insurer issues to pay for covered losses incurred by Fannie Mae;

  • Fannie Mae has the right to file a claim directly with the insurer if the seller/servicer fails to file a claim for a covered loss incurred by Fannie Mae when reasonably available;

  • Fannie Mae will be notified at least 30 days before the insurer cancels, reduces, declines to renew, or imposes a restrictive modification to the seller/servicer’s coverage for any reason other than a partial or full exhaustion of the insurer’s limit of liability under the policy; and

  • a provision that the insurer will notify Fannie Mae within ten days after the insurer receives a seller/servicer’s request to cancel or reduce any coverage.

The seller/servicer must provide Fannie Mae a copy of its fidelity bond or errors and omissions insurance certificate within 30 days of Fannie Mae’s request. If the seller/servicer obtains an endorsement to the bond or policy or obtains additional coverage, it should also provide Fannie Mae a copy of the endorsement or a description of the additional coverage, unless the information can be summarized substantively on the insurance certificate.

The insurance certificate should indicate:

  • the insurer’s name,

  • the bond or policy number,

  • the named insured,

  • the type and amount of coverage (specifying whether the insurer’s liability limits are on an aggregate loss or per mortgage basis),

  • the effective date of the coverage, and

  • the deductible amount.

Related Announcements

The table below provides references to the Announcements that have been issued that are related to this topic.

Announcement Issue Date
Announcement SEL-2017-06 July 25, 2017
Announcement SEL-2017–01 January 31, 2017