Servicing Guide

Published December 12, 2018

Servicer Responsibilities Related to Property Insurance for First Lien Mortgage Loans

The servicer must ensure at all times that any required property insurance coverage is maintained to protect Fannie Mae’s interest in the mortgage loan. The following table lists the servicer’s responsibilities applicable to all first lien mortgage loans owned or securitized by Fannie Mae unless otherwise noted.

The servicer must...

Verify annually that the selected insurance carrier, policy amount and type of coverage meet Fannie Mae’s requirements.

Ensure requirements contained in any negotiated contract are met.

Ensure property insurance premiums are paid. See B-1-01, Administering an Escrow Account and Paying Expenses for additional information.

Immediately obtain new coverage to meet Fannie Mae’s requirements if the borrower allows the insurance coverage to lapse. See B-6-01, Lender-Placed Insurance Requirements for additional information.

Contact its Fannie Mae Servicing Representative (see F-4-03, List of Contacts) to determine if additional coverage is needed if the insurable improvements of the property securing a mortgage loan are exposed to hazards a fire and extended coverage policy does not protect against.

Change the insurance coverage for a mortgage loan when it is inadequate to protect Fannie Mae’s interests or, in the instance of lender-placed insurance, causes Fannie Mae to be overinsured. Examples include properties that become vacant and home renovation or construction mortgage loans where the renovation or construction work is completed or the borrower occupies the property. Also, see B-4-02, Builder’s Risk/Construction Site Insurance for additional information.

Servicer Responsibilities Related to Property Insurance for Second Lien Mortgage Loans

The following table lists the servicer’s responsibilities applicable to all second lien mortgage loans owned or securitized by Fannie Mae.

The servicer must...

Obtain and review a copy of the first lien mortgage loan insurance policy annually to determine if the insurance coverage meets Fannie Mae’s requirements.

Require the borrower to obtain appropriate endorsements that will bring the coverage in line with Fannie Mae’s requirements if the existing property insurance policy does not provide the amount of coverage Fannie Mae requires and send a copy of these endorsements to the servicer of the first-lien mortgage loan.

Ensure property insurance premiums are paid, see B-1-01, Administering an Escrow Account and Paying Expenses for additional information.
Obtain new coverage to meet Fannie Mae’s requirements if the borrower allows the insurance coverage to lapse. See B-6-01, Lender-Placed Insurance Requirements for additional information.

Property Insurance Policy and Coverage Requirements

The requirements of a property insurance policy for the insurable improvements of the property securing a mortgage loan are as follows:

  • The coverage must protect against loss or damage from fire, windstorm, hurricane, hail, and other hazards covered by the standard extended coverage endorsement.

  • If the property insurance policy includes such limitations and exclusions, the borrower must obtain a separate policy or endorsement from another insurer that provides adequate coverage for the limited or excluded peril.

  • The coverage must provide for claims to be settled on a replacement cost basis.

Also see B-2-02, Property Insurance Requirements for Mortgage Loans Secured by a One- to Four-Unit Property and B-2-03, Property Insurance Requirements for Mortgage Loans Secured by a Unit in a PUD, Condo, or Co-op for additional information.

Property Insurance Carrier Rating Requirements

Refer to Selling Guide B7-3-01, Property Insurance Requirements for Insurers for acceptable property insurance carrier ratings requirements.

Evidencing Acceptable Property Insurance

The following is acceptable evidence of property insurance:

  • the original insurance policy or a short form certificate of insurance showing all of the necessary information and signed by the insurer, or

  • data files including sufficient information about the insurance policy, the property, and the borrower, provided the following requirements are met:

    • The data file is equivalent to a printed policy and includes sufficient information to evidence compliance with Fannie Mae’s requirements.

    • The servicer’s errors and omissions insurance policy acknowledges electronic data transfers and fully protects the servicer and Fannie Mae against losses resulting from erroneous data files or transfers.

    • The servicer can produce legible hard copies of the insurance policies and proof of premium payments to Fannie Mae upon request.

Related Announcements

The following table provides references to Announcements that are related to this topic.

Announcements Issue Date
Announcement SVC-2018-09 December 12, 2018