| Fannie Mae Lender Letter 06-05 |
| Wednesday, 31 May 2006 | |
|
After working closely with lenders, servicers, insurers, and state insurance commissioners, Fannie Mae has made effective immediately the insurance policy changes outlined in Lender Letter 06-05. Fannie Mae's goal is to lower insurance costs for all homeowners. The four main changes are:
Hazard and Wind
Deductibles
Fannie Mae currently requires one to four family property,
condominium, cooperative and PUD project policy holders to pay
a deductible, varying based on policy provisions, up to
$10,000 or two percent of the face amount of the policy. Going
forward, Fannie Mae will accept hazard and wind loss deductibles up
to 5% of the face amount of the insurance policy for all property
types.
Flood Insurance
Deductibles
Fannie Mae's flood insurance requirements have been updated to
accept deductibles up to the maximum deductible available under the
NFIP for all property types. This increases deductibles for one- to
four-family properties and unit owners with individual policies
from the higher of $1,000 or one percent of the policy face amount
to a maximum of $5,000, and condo, cooperative and PUD project
policy holders can have a maximum deductible of
$25,000.
Flood Insurance Coverage: One-Family to Four-Family
Properties
Fannie Mae has updated the existing minimum flood insurance
coverage requirements to be the lowest of 100% of the
property dwelling replacement cost, the maximum insurance
available from the NFIP, or the unpaid principle balance
of the mortgage.
When the UPD is the lowest option, it must be at least 80% of
the structure replacement cost. However, if the UPB is less than
80% of the replacement cost, the required insurance coverage amount
must be at least 80% of the structure value.
Flood Insurance Requirements for Properties located in
the Costal Barrier Resources System or Otherwise Protected
Area
Properties located in the Coastal Barrier Resources System
(CBRS) or within an Otherwise Protected Area (OPA) will now be
accepted for private flood insurance policies in flood hazard areas
not eligible for federal flood insurance. Deductibles will not
exceed the NFIP maximums based on the property type. Additionally,
the flood insurance carrier must meet only one of the following
rating categories:
Carriers rated by the A.M. Best Company, Inc. must have
either
Carriers
rated by Demotech, Inc. must have an "A" or better rating in
Demotech's Hazard Insurance Financial Stability
Ratings.
Carriers
rated by Standard and Poor's must have a "BBB" or better Insurer
Financial Strength Rating in Standard and Poor's Ratings Direct
Insurance Service.
Fannie Mae
also recommends that lenders and servicers advise borrowers to
discuss the insurance policy coverage options with their carriers
to ensure the policy is best tailored to a homeowner's particular
needs and financial circumstances. Borrowers should be encouraged
to set deductible amounts that balance the borrower's want of a
lower premium against the increased exposure to repair costs in the
event of a tragedy or disaster.
Lenders and
servicers can contact their Customer Account Team Portfolio
Manager, or Servicing Consultant, if any questions exist about the
announcement.
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