B7-3-01, General Property Insurance Requirements for All Property Types (12/14/2022)
Introduction
This topic contains information on property insurance requirements for insurers, including:
- Overview
- Property Insurer Rating Requirements
- Exceptions to Insurer Rating Requirements
- Other Exceptions to Property Insurance Requirements
Overview
The borrower has the right to select the insurer of their choice to provide property insurance for the subject property, provided that the insurance meets Fannie Mae's requirements. The lender or servicer must ensure that the insurer, policy, and coverage meet Fannie Mae's requirements. In some cases, Fannie Mae may require additional coverage that differs from these requirements.
Note: References to "lender or servicer" include the lender or seller at origination and the servicer for the duration of loan servicing.
Property Insurer Rating Requirements
The property insurance policy for the property securing any first mortgage, including master policies for project developments, must be written by an insurer that meets one of the rating requirements in the following table.
| Rating Agency | Rating Category |
|---|---|
| AM Best Company |
“B” or better Financial Strength Rating |
| Demotech, Inc. | “A” or better Insurance Financial Stability Rating |
| Kroll Bond Rating Agency | “BBB” or better Insurance Financial Strength Rating (IFSR) |
| S&P Global | “BBB” or better Insurer Financial Strength Rating |
Note: An insurer is only required to meet the rating category requirement for one of the rating agencies, even if they are rated by multiple rating agencies.
Exceptions to Insurer Rating Requirements
The following are exceptions to Fannie Mae’s insurer rating requirements:
-
Second Mortgages — The property insurance policy for a property that secures a second mortgage does not have to be written by an insurer that meets Fannie Mae’s rating requirements, unless Fannie Mae also has an interest in the first mortgage.
-
Mortgage Impairment (or Mortgagee Interest) Insurance — If the lender or servicer, as applicable, is covered by a mortgage impairment (or mortgagee interest) insurance policy, and the issuer meets either the AM Best Financial Strength Rating or S&P Global Insurer Financial Strength Rating, as listed in Property Insurer Rating Requirements, Fannie Mae does not require confirmation that the borrower’s property insurance coverage is with an insurer 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 loan.
-
Reinsurance Arrangements — Policies written by an insurer that do 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 AM Best Financial Strength Ratings or S&P Global Insurer Financial Strength Rating, as listed in Property Insurer 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.
|
|
| 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. |
Other Exceptions to Property Insurance Requirements
Fannie Mae also accepts the following types of property insurance policies if they are the only coverage that can be obtained at the time of the loan closing or policy renewal:
-
policies obtained through state or territory insurance plans, including a state’s Fair Access to Insurance Requirements (FAIR) plan, or
-
other state-mandated windstorm and beach erosion insurance pools.
Recent Related Announcements
The table below provides references to recently issued Announcements that are related to this topic.
| Announcements | Issue Date |
|---|---|
| Announcement SEL-2022-10 | December 14, 2022 |
| Announcement SEL-2021-11 | December 15, 2021 |
