Property Insurance Requirements for Mortgage Loans

Determining Minimum Coverage Amounts

Coverage must equal the lesser of
  • 100% of the insurable value of the improvements, as established by the property insurer; or
  • the UPB of the mortgage loan (or, if the mortgage loan is a second lien mortgage loan, the combined UPB of the first lien and second lien mortgage loans), as long as the UPB of the mortgage loan (or the combined UPBs) equals at least the minimum amount required to compensate for damage or loss on a replacement cost basis, which is usually 80% of the insurable value of the improvements.
The servicer must follow the procedures in Determining Property Insurance Coverage Amounts in F-1-02, Escrow, Taxes, Assessments, and Insurance for detailed steps to determine the amount of insurance Fannie Mae requires.

Maximum Allowable Deductible Requirements

The maximum allowable deductible is 5% of the face amount of the policy. See B-6-01, Lender-Placed Insurance Requirements for the deductible requirements for a lender-placed insurance policy.

Named Insured and Mortgagee Clause Requirements

In all cases, the insurer must be instructed to send all correspondence, policies, bills, and other information to the servicer (or to both the first and second lien mortgage loan servicers). The servicer must name Fannie Mae in the mortgagee clause if coverage or Fannie Mae’s interest would be impaired by not being named. Otherwise, the mortgagee clause is based on the mortgagee of record and the mortgage loan type as described in the following tables.
If the mortgagee is…Then…
Fannie Maethe mortgagee clause must read “Fannie Mae, in care of [insert servicer’s name and address here].”
the servicerthe servicer’s name, followed by the phrase “its successors and assigns,” must be shown as the mortgagee.
MERSthe mortgagee clause must name the servicer unless Fannie Mae must be named because the coverage or its interest would be impaired by its not being named.
Type of Mortgage LoanMortgagee Clause Requirements
First lien mortgage loanThe policy must include (or have attached) a “standard” or “union” mortgagee clause (without contribution) in the form customarily used in the area in which the property is located.
Second lien mortgage loanThe mortgagee clause in the property insurance policy for the first lien mortgage loan must be amended to recognize the second lien mortgage loan and to clearly set out Fannie Mae’s interest in the policy coverage.
Related Announcements The following table provides references to Announcements that are related to this topic.
AnnouncementsIssue Date
Announcement SVC–2015–13October 14, 2015

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