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