Agents have had questions and concerns about communications that they have received from banks and lenders. Regarding issues, they cite that Fannie Mae and Freddie Mac require policies to have full replacement costs, and this is obviously causing an issue with loans.
The guideline would explicitly deem actual cash value coverage unacceptable and require replacement cost coverage.
Following these announcements, we have been attentive to the concerns raised by our industry partners about lenders and servicers’ ability to comply with our longstanding policy to obtain the replacement cost value. We understand the importance of confirming that the minimum required coverage amount in our guides is met, and we are committed to addressing these concerns.
During this period, we will conduct additional research and engage with the industry to evaluate the reported obstacles to lenders’ and servicers’ compliance with our requirements related to replacement cost value.
WASHINGTON, D.C., May 9, 2024— On Wednesday, letters released by Fannie Mae and Freddie Mac announced the postponement of a June 1 implementation of updates to their selling and servicing guides to clarify various lender and servicer responsibilities related to monitoring and verifying property insurance coverage.
Following these bulletins, we have heard concerns from industry partners regarding their ability to comply with our longstanding policy to obtain the RCV. In light of the unique nature of these concerns, in consultation with FHFA and in coordination with Fannie Mae & Freddie Mac, effective immediately and until further notice, we will not cite findings during our Counterparty Operational Risk Evaluation (CORE) reviews for noncompliance related to a Servicer obtaining RCVs during their review of hazard insurance to determine coverage amount sufficiency. This includes failing to obtain lender-placed insurance for a hazard coverage shortage due to failure to utilize RCV.
During this period, we will continue our existing practice of conducting targeted procedural and loan-level reviews consistent with our hazard insurance requirements. We value the input of our industry partners and will work closely with them to determine how sellers and servicers can better comply with our requirements.
It’s important to note that seller and servicer obligations to ensure the mortgaged premises are adequately insured under Guide Chapters 4703 and 8202 remain unchanged. This includes obtaining lender-placed insurance when the borrower does not maintain an active hazard insurance policy.
Seller and servicer representation and warranty obligations under Section 1301.11 concerning a loss resulting from insufficient insurance remain unchanged. Additionally, this industry letter does not impact the citation of findings related to noncompliance with our flood insurance requirements.
The effective date for these requirements, as announced in Bulletins 2024-1 and 2024-2, is June 1, 2024. In these bulletins, we introduced minor updates to our flood insurance requirements for condominium projects, removed coinsurance requirements, and clarified various aspects of our longstanding insurance requirements related to hazard insurance policies. The effective date of June 1, 2024, noted in these bulletins, was intended to provide sellers and servicers ample time to update their policies and procedures to accommodate these minor updates. We will communicate any applicable updates at a future date.
“The Big ‘I’ is thankful for the postponement of this guidance, recognizing the potential burden it could place on consumers and the economy during this hard market,” says Nathan Riedel, Big “I” Senior Vice President for Federal Affairs. “We look forward to working with FHFA, Fannie Mae, Freddie Mac, and other stakeholders on these property insurance requirements.”
The Big “I” was the only agent trade association to weigh in on this issue with the FHFA and government-sponsored enterprises (GSEs), communicating with each and submitting a joint letter with the National Association of Mutual Insurance Companies stating that the guidance would worsen existing challenges in the property insurance market.
Conclusion: This has led to significant confusion among lenders and servicer’s. This notice is still accurate – enforcement of the updated property insurance requirements is still postponed indefinitely while Fannie Mae and Freddie Mac meet with stakeholders to better understand the marketplace challenges. If you would receive communications regarding this, we have encouraged agents to provide the letters from Fannie Mae and Freddie Mac by clicking on the links, confirming that they will not cite noncompliance.
Want to learn more about what’s in-flux for RCEs and lender requests? Read our recent blog, Addressing Lender Requests for Replacement Cost Estimators: Protecting Agents and Clients from Coverage Gaps!
More Information: Seek your trusted advisors Attorney, Banker, and CPA that your legal and financial interests are adequately protected. The information provided in this publication is not intended to be a substitute for legal advice. You should consult your legal counsel and make certain that you are in compliance with state law. These laws and rules are subject to change.
Legal Disclaimer: This material is intended to provide you with general background and insight. The material does not constitute, and should not be regarded as, legal advice regarding any particular facts, circumstances, or issues. This material is not intended to serve as a substitute for legal counsel, and we advise you to contact legal counsel for specific analysis, drafting and advice.
Cited Resources
Big ‘I’ Praises Fannie Mae, Freddie Mac for Postponing Guidance for Property Insurance Requirements
The guideline would explicitly deem actual cash value coverage to be unacceptable, require replacement cost coverage.
WASHINGTON, D.C., May 9, 2024
Fannie Mae
May 8th, 2024
Freddie Mac
Industry Letter: Freddie Mac Sellers and Servicers Responsibilities to Insure the Mortgaged Premises
About the Author:
Jeannine Giesler, CISR, CPIA, and past President of the OIA Board of Directors, Foundation for the Advancement of Insurance Professionals, currently serves as Resource Center Advisor for the OIA. The purpose of the Resource Center is to contribute to building a comprehensive library of resource materials for our members. We pride ourselves on being the one-stop shop for all OIA members and work to solve every problem or situation you may come across.
