Servicing Guide

Published June 13, 2018

B-7-02: Fidelity/Crime Insurance Requirements for Project Developments (11/12/2014)

Fannie Mae requires fidelity/crime insurance coverage for all PUD, co-op, or condo projects with the following exceptions:

  • Type A condo projects;

  • Type E established PUD projects;

  • Type F new PUD projects that consist of detached dwellings only, or those consisting of both attached and detached dwellings if the mortgage loan Fannie Mae holds is secured by a detached dwelling; or

  • any other PUD, condo, or co-op project consisting of 20 or fewer units.

The HOA or co-op corporation must have blanket fidelity/crime insurance coverage for anyone who handles or is responsible for funds held or administered by the HOA or co-op corporation. A management agent that handles funds for the HOA or co-op corporation should be covered by its own fidelity/crime insurance policy, which should provide the same coverage required of the HOA or co-op corporation.

The policy must cover the maximum funds in the custody of the HOA or co-op corporation or its management agent at any time while the policy is in force. Fidelity/crime insurance is not required if the maximum funds are less than or equal to $5,000.

If the project’s legal documents require, or another source acceptable to the servicer verifies, that the HOA or co-op corporation and any management company adhere to certain financial controls, coverage must at least equal the sum of three months of assessments on all units in the project, unless this calculated amount is less than or equal to $5,000, in which case fidelity/crime insurance is not required. In states with statutory fidelity/crime insurance requirements, Fannie Mae will accept the state fidelity/crime insurance requirements.

If reduced coverage is allowed, the financial controls must take one or more of the following forms:

  • the HOA or co-op corporation or the management company must maintain separate bank accounts for the working account and the reserve account, each with appropriate access controls, and the bank in which funds are deposited must send copies of the monthly bank statements directly to the HOA or co-op corporation;

  • the management company must maintain separate records and bank accounts for each HOA or co-op corporation that uses its services and the management company must not have the authority to draw checks on, or to transfer funds from, the HOA’s or co-op corporation’s reserve account; or

  • two members of the Board of Directors must sign all checks written on the reserve account. The insurance policy must name the HOA or co-op corporation as the insured and the premiums must be paid as a common expense by the HOA or co-op corporation. The policy for a condo or co-op project must provide for at least ten days’ written notice to the HOA or its insurance trustee before the insurer can cancel or substantially modify the policy. This same notice must be given to each servicer that services a Fannie Mae-owned mortgage loan in the condo project.