The errors and omissions policy must, at least, protect the seller/servicer against negligence, errors, and omissions in:
maintaining property and flood insurance that meets Fannie Mae’s requirements,
maintaining any required mortgage insurance or loan guaranty,
determining whether properties are located in Special Flood Hazard Areas,
paying real estate taxes and any special assessments, and
complying with reporting requirements of the mortgage insurer or guarantor.
The errors and omissions coverage must equal the amount of the seller/servicer’s fidelity bond coverage. See the formula in A3-5-02, Fidelity Bond Policy Requirements to determine the amount of coverage required. However, Fannie Mae does not require errors and omissions coverage in excess of:
$10 million if the seller/servicer sells or services only single-family mortgage loans, or
$30 million if the seller/servicer sells or services single-family and multifamily mortgage loans.
Note: If the seller/servicer uses a subservicing arrangement, the master servicer must maintain errors and omissions coverage at all times for the servicing of mortgage loans that it owns but that the subservicer services for that master servicer. A subservicer must only maintain coverage for mortgage loans that it owns. (See the Servicing Guide A2-1-06, Subservicing for additional information about subservicing arrangements.)
Fannie Mae accepts policies that provide for either coverage per aggregate loss or coverage per mortgage loan. If the policy provides coverage per mortgage loan:
the insurer’s liability must at least equal the amount of the highest UPB for a single-family or multifamily mortgage loan. that the seller/servicer owns, and
the seller/servicer must review the balances of the mortgage loans it services before each premium renewal date to determine whether the above limitation needs to be increased as the result of the origination of higher balance mortgage loans during the last coverage period.
For policies that provide coverage per mortgage loan, the maximum deductible amount for each mortgage loan cannot be more than 5% of the insurer’s liability per mortgage loan.
For policies that provide coverage per aggregate loss, the deductible is determined in accordance with the following table:
|Total UPB||Maximum Deductible|
|Less than $1 billion||greater of $100,000 or 10% of the face amount of the policy|
|Equal to or greater than $1 billion||15% of the face amount of the policy|
Fannie Mae will accept a mortgage impairment or mortgagee interest policy as a substitute for an errors and omissions policy, provided Fannie Mae receives substantially the same coverage that an errors and omissions policy would provide.
The table below provides references to the Announcements that have been issued that are related to this topic.