Lenders must follow the requirements below relative to documenting and retaining evidence of property insurance policies:
The servicer should hold individual insurance policies for first mortgages, unless the servicer is covered by a mortgage impairment or mortgagee interest insurance policy or uses other evidence of insurance that Fannie Mae considers acceptable.
The servicer must be given a copy of any insurance policy covering the common areas of the PUD project when the mortgage covers an individual unit in a PUD and coverage for the unit is provided under an individual policy.
The servicer of a second mortgage does not need to keep the original policy in its possession if it is not responsible for paying the renewal premiums; however, it should retain in its files a copy of the insurance policy, any endorsements to it, and evidence of premium payments.
When the borrower obtains property insurance, the lender must verify the actual existence of a valid policy that meets Fannie Mae’s requirements. Information related to the policy should be passed on to the servicer.
The servicer may store any of the forms used as evidence of insurance in an electronic medium. However, the servicer must be able to provide a legible copy of any particular policy if Fannie Mae requests one.
Instead of providing a full insurance policy for each property, some insurers issue a short-form certificate of insurance. A lender may accept a short-form certificate of insurance in lieu of an original policy if the certificate shows all of the necessary information and is signed by the insurer. In this case, a complete text of the full policy must be retained in the servicer’s office.
Many units in condo or co-op projects are covered by master or blanket policies instead of by individual policies. This also is true for some PUD units. In these cases, the servicer should be given a copy of the current master or blanket policy and a certificate of insurance showing that the individual unit that secures the mortgage loan or co-op share loan is covered under the policy. As an alternative, the lender may obtain from an authorized representative of the insurer individual evidence of insurance for each unit. This evidence must:
provide for at least 10 days’ written notice—30 days’ for co-ops—to the servicer if the policy is canceled or not renewed, or if any other change that adversely affects Fannie Mae’s interests is made;
include the types and amounts of coverage provided; and
describe any endorsements that are part of the master policy.
Some insurance carriers no longer issue original property insurance policies. Instead, they provide a data file that includes essential information about the insurance policies they have issued for properties securing mortgages serviced by the lender. Because that data file is the source that the insurance carrier uses to issue actual policy documents, these data files are acceptable in lieu of original policies as long as the following controls exist to ensure that Fannie Mae’s interests are protected:
The data file must include sufficient information about the insurance policy, the property, and the borrower to ensure that the servicer is able to comply with Fannie Mae’s requirements for maintaining and monitoring property insurance (such as reviewing the policy terms, amount of coverage, and deductible limits; confirming that premiums have been paid; and processing loss drafts).
The lender’s errors and omissions insurance policy must acknowledge electronic data transfers and fully protect the lender and Fannie Mae against losses incurred as the result of erroneous data files or transfers.
The insurance carrier must provide the lender with written assurance that the data file is equivalent to a printed policy, typically through a detailed agreement between the two parties.
The servicer must have in place appropriate procedures to mitigate risks associated with not possessing an original hardcopy policy, which may include obtaining certifications from the insurance carrier as to the accuracy of certain information that the servicer is required to verify.
The servicer must be able to provide legible hard copies of the actual insurance policies and proof of premium payments if Fannie Mae ever requests them.
The table below provides references to the Announcements that have been issued that are related to this topic.