Below is an excerpt from B7-3-06, Evidence of Property Insurance (12/15/2021)
Lenders and servicers must follow the requirements below relative to documenting and retaining evidence of property insurance policies:
- The lender or servicer 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, when applicable.
- The lender or servicer must hold an individual insurance policy, which includes information about the property and the borrower, for first-lien loan, unless the lender or servicer is covered by a mortgage impairment or mortgagee interest insurance policy or uses other evidence of insurance that Fannie Mae considers acceptable.
- The lender or 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 must retain in its files a copy of the insurance policy, any endorsements to it, and evidence of premium payments.
The lender or servicer may store any of the forms used as evidence of insurance in an electronic medium provided that
- any data file is equivalent to a printed policy and includes sufficient information to evidence compliance with Fannie Mae’s requirements.
- as applicable, the lender or servicer’s errors and omissions insurance policy acknowledges electronic data transfers and fully protects the lender or servicer and Fannie Mae against losses resulting from erroneous data files or transfers.
- the lender or 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 or servicer 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 lender or 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 lender or 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 loan is covered under the policy. As an alternative, the lender or servicer 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 loans for a particular lender or servicer. 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 if 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 or servicer’s errors and omissions insurance policy must acknowledge electronic data transfers and fully protect the lender or servicer and Fannie Mae against losses incurred as the result of erroneous data files or transfers.
- The insurance carrier must provide the lender or servicer with written assurance that the data file is equivalent to a printed policy, typically through a detailed agreement between the two parties.
- The lender or servicer must have appropriate procedures in place 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 lender or servicer must be able to provide legible hard copies of the actual insurance policies and proof of premium payments if Fannie Mae requests them.
The table below provides references to the Announcements that have been issued that are related to this topic.