Fannie Mae Updates Lender-Placed Property Insurance and Claims Processing
by Carolyne Munyui
Assistant Vice President
On March 14 2012, Fannie Mae issued an announcement to update the Servicing Guide, on its policy regarding the use, coverage requirements, deductibles, carrier eligibility requirements & allowable reimbursable expenses for lender placed insurance. The Announcement (SVC-2-12-4) requires implementation no later than June 1, 2012.
Servicers must obtain lender-placed coverage (force-placed insurance) to protect Fannie Mae’s interests, if unable to obtain evidence of acceptable hazard insurance for a property from the borrower and until acceptable insurance coverage is provided or mortgage loan liquidates. The amendments are as follows:
For mortgage loans current to 119 days delinquent, coverage amount is to be issued at borrower’s last known coverage amount and if 120 days or more delinquent, or becomes 120 days delinquent following the effective date of this announcement, coverage amount must be changed to lesser of the unpaid principal balance (UPB) or to 100% of the insurable value of the improvements.
Lender coverage amount should not be changed for borrowers actively participating in forbearance plan, repayment plans, trial plans or submitted complete Borrower’s response package unless failing to meet or satisfy terms. For property damage covered under existing insurance policy, servicers must not change policy coverage amounts until the claim has been submitted.
Fannie Mae is changing its deductible requirement for all mortgage loans with lender placed insurance:
The allowable deductible per loss occurrence for insurance covering property is, $1000 if the face amount of the policy is $100,000 or less, and to $2500 for all other insurance coverage amounts.
Flood Hazard Area insurance coverage and deductible requirements remain unchanged.
As updated on this announcement, servicers must now contact the borrower at least twice by letter, prior to obtaining lender-placed insurance coverage and send written notification to the borrower when changing coverage type due to the loan delinquency status. Servicer should ensure lender-placed insurance carriers meet applicable federal and state laws and filed in every state for which they service Fannie Mae loans. Fannie Mae will allow the use of excess and surplus lines coverage during the filing period, up to a maximum of 180 days from the date of this Announcement
Servicers should remind the borrowers of the benefits of borrower purchased insurance coverage over lender placed insurance premiums (expensive, only covers outstanding UPB excluding property) when offering home retention options, as increased costs may impact the ability to reinstate delinquent loans.
Effective immediately, borrower refunds of lender-placed insurance premiums must occur within 15 days of receipt of evidence of acceptable insurance coverage from the borrower. Servicer reimbursement request for reimbursement for lender-placed insurance premiums must exclude commission earned, costs associated with insurance tracking or administration or any other costs incurred by servicer beyond the actual cost of the lender-placed insurance policy premium. Lender-placed insurance master policies may not contain a coinsurance clause or any other provision that yields the same result as a coinsurance clause.
Servicer to advance the short fall in funds up to (or equal to) the amount of the deductible for the repairs, when borrower is financially unable to complete repairs .For reimbursement submit Cash Disbursement Request-Form 571. Refer to Servicing Guide for uninsured losses requirements.
Servicers are required to refer to the Servicing Guide for hazard insurance claims and remittances to Fannie Mae in adhering to requirements for Filing of Insurance Claims, for Damages Found from Property Inspections, Remitting Outstanding Insurance Loss Drafts, and in Reporting to Fannie Mae’s Property Recovery Firm under the terms specified in Fannie Mae’s Guides.
About the Author
Carolyne is A.V.P. and Director of Quality Assurance Research for Bankers Advisory. She formerly worked as a project manager for Fannie Mae in the National Loan Servicing Organization in Dallas, Texas.
Anna DeSimone founded Bankers Advisory in 1986 and is a nationally recognized authority in residential mortgage lending. She has received numerous industry awards and has authored more than 40 best practices guides and hundreds of articles.
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