Selling Guide

Published June 3, 2020

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B7-3-01, Property Insurance Requirements for Insurers (12/04/2018)

Introduction

This topic contains information on property insurance requirements for insurers (also referred to as carriers), including:


Provision of Property Insurance

Each borrower has the right to select his or her own insurance carrier to provide property insurance for the security property, provided that the insurance policy and coverage meet Fannie Mae's requirements. The seller/servicer must ensure that the insurance carrier, policy, and coverage meet Fannie Mae's requirements. In some cases, Fannie Mae may require additional coverage or consider coverage that differs from these requirements.


Property Insurance Rating Requirements

The property insurance policy for the insurable improvements of the property securing any first-lien mortgage loan, including master policies for condo, co-op, and PUD projects, must be written by a carrier that meets one of the rating requirements in the following table.

Rating Agency Rating Category
A.M. Best Company, Inc. Either
  • a “B” or better Financial Strength Rating in Best’s Insurance Reports, or

  • an “A” or better Financial Strength Rating and a Financial Size Category of “VIII” or greater in Best’s Insurance Reports Non-US Edition

Demotech, Inc. “A” or better rating in Demotech’s Hazard Insurance Financial Stability Ratings
Kroll Bond Rating Agency “BBB” or better rating in Kroll Bond Rating Agency’s Insurance Financial Strength Rating (IFSR)
Standard & Poor’s “BBB” or better Insurer Financial Strength Rating in Standard & Poor’s Ratings Direct Insurance Service

Note: If a carrier is rated by more than one rating agency, it only has to meet the requirements for one of them.


Exceptions to Property Insurance Requirements

Fannie Mae also accepts the following types of property insurance policies if they are the only coverage the borrower can obtain:

  • policies underwritten by a state’s Fair Access to Insurance Requirements (FAIR) plan; and

  • policies obtained through state or territory insurance plans, such as the Hawaii Property Insurance Association (HPIA), Florida’s Citizens Property Insurance Corporation, or other state-mandated windstorm and beach erosion insurance pools.

The following are exceptions to Fannie Mae’s property insurance carrier rating requirements:

  • Second Mortgages — The property insurance policy for a property that secures a second mortgage does not have to be written by an insurance carrier that meets Fannie Mae’s criteria, unless Fannie Mae has an interest in the first-lien mortgage loan.

  • Mortgage Impairment (or Mortgagee Interest) Insurance — If the seller/servicer is covered by a mortgage impairment (or mortgagee interest) insurance policy, and the issuer meets either the A.M. Best Financial Strength Rating or Standard & Poor’s Insurer Financial Strength Rating, Fannie Mae does not require confirmation that the borrower’s property insurance coverage is with a firm that meets Fannie Mae’s rating requirements. However, in such instances, the lender should advise the borrower of Fannie Mae’s requirements when it originates the mortgage loan.

  • Reinsurance Arrangements — The policies of an insurer that does not meet Fannie Mae’s rating requirements are acceptable provided all conditions outlined in the following table are met.

Conditions for Acceptable Reinsurance Arrangements
The insurer is covered by reinsurance with a company that meets the A.M. Best Financial Strength Ratings or Standard & Poor’s Insurer Financial Strength Rating, as listed in Property Insurance Rating Requirements.
The primary insurer and the reinsuring company are authorized (or licensed, if required) to transact business within the state where the property is located.
The reinsurance agreement has a “cut-through” endorsement that provides for the reinsurer to become immediately liable for 100% of any loss payable by the primary insurer in the event the primary insurer becomes insolvent.
Both the primary insurer and the reinsuring company execute an Assumption of Liability Endorsement (Form 858), or any equivalent endorsement that provides for 100% reinsurance of the primary insurer’s policy and a 90-day written notice to Fannie Mae of the termination of the reinsurance arrangement.

Note: Form 858 (or the equivalent endorsement) must be attached to each insurance policy covered by the reinsurance agreement, unless the seller/servicer is covered by a mortgage impairment (or mortgagee interest) insurance policy.

The reinsurance agreement does not allow contributions or assessments to be made against Fannie Mae or to become a lien on the property that is superior to Fannie Mae’s lien.
The insurance written under the policy cannot exceed any dollar limitation amount specified in the reinsurance endorsement.

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