B-5-01, Insured Loss Events (07/12/2023)

When a property securing a mortgage loan experiences an insured loss, the servicer must ensure the proof of loss claim is filed within the time period specified in the insurance policy and monitor the disbursement of insurance loss proceeds (see Disbursing Insurance Loss Proceeds Based on the Mortgage Loan Status and the Borrower’s Intent for additional information).

Note: If the servicer is unable to establish contact with the borrower, the servicer must contact the insurance carrier to determine whether the borrower has filed the proof of loss claim. If the borrower has not filed the claim, the servicer must file a proof of loss claim under the standard mortgagee clause and collect the insurance loss proceeds on Fannie Mae's behalf.

If a property inspection reveals an insurable loss event and the proof of loss claim is not filed, is denied, or is curtailed due to the servicer’s failure to file a timely claim, the servicer must make Fannie Mae whole for any losses relating to the property damage, expenses, or fees Fannie Mae incurs.

Additional responsibilities depend upon whether the property can be legally rebuilt, as described in the following table.

The following table provides a list of the servicer's responsibilities when there is an insurable loss on a property securing a mortgage loan and the property can be legally rebuilt.

The servicer must release the insurance loss proceeds received from the insurance carrier based on the status of the mortgage loan at the time of the loss event and whether the borrower intends to repair the property.

Mortgage Loans Current or Less Than 31 Days Delinquent

If a mortgage loan is current or less than 31 days delinquent at the time of the loss event, then the servicer is authorized to

• release an initial disbursement of insurance loss proceeds up to the greater of 
  • $40,000;
  • 33% of the insurance loss proceeds; or
  • the amount by which the release funds exceed the sum of the UPB, accrued interest, and advances on the mortgage loan; and
• disburse any remaining funds based on periodic inspections of the progress of the repair work.

If multiple disbursements of insurance loss proceeds are required, the servicer must also

• review and approve the final plans for repair, including obtaining the necessary bids to repair the property; and
• monitor and inspect repairs as completed to verify the repairs comply with the final repair plan.

Note: A final inspection is not required.

Note: If the borrower has made advance payments to the contractor and/or to purchase materials, then the servicer is authorized to reimburse the borrower by releasing insurance loss proceeds as evidenced by paid receipts. Receipts are not necessary if the loss proceeds are less than or equal to $40,000.

Mortgage Loans 31 Days or More Delinquent

The servicer must evaluate the borrower for a workout option in accordance with D2-3.1-01, Determining the Appropriate Workout OptionD2-3.1-01, Determining the Appropriate Workout Option and disburse the insurance loss proceeds as outlined in the following table.

Regardless of the disbursement amount or schedule, the servicer must

• review and approve the final plans for repair, including obtaining the necessary bids to repair the property; 
• monitor and inspect repairs as completed to verify the repairs comply with the final repair plan; and
•  conduct a final inspection to ensure all repairs are completed.

Mortgage Loans for Properties that are Abandoned and/or Have a Scheduled Foreclosure Sale Date

If the borrower wants to repair or restore the property, then the servicer must take the actions described in the following table.

When the Borrower Does Not Intend to Make Repairs

If a borrower does not want to repair or restore the property, the servicer must take the actions described in the following table.

The servicer must remit insurance loss proceeds to Fannie Mae depending upon the circumstance of the mortgage loan, as outlined in the following table.

Insured Loss Repair Inspection Costs:

The servicer is authorized to request reimbursement for insured loss repair inspection costs incurred on current and delinquent mortgage loans when required to disburse additional funds or complete a final inspection of repairs. To request reimbursement, the servicer must follow the procedures in Reimbursement for Property Inspections and Property Preservation Expenses in  F-1-05, Expense ReimbursementF-1-05, Expense Reimbursement.

For mortgage loans that are current or less than 31 days delinquent at the time of the loss event, the servicer is authorized to use borrower-submitted photos and/or video, or conduct servicer-directed video calls with the borrower to document the progress or completion of repairs of the property, provided that the conditions listed in the following table are met.

Note: For remote inspections conducted by video call with the borrower, the servicer must retain video and/or photo records of the call that clearly document the servicer’s compliance with the above requirements.

The servicer must deposit the insurance loss proceeds not disbursed to the borrower in an interest-bearing account. The following table provides a list of account requirements.

The servicer must pay the accumulated interest to the borrower once the repairs to the property have been completed, unless

• the borrower requests an earlier disbursement of the interest, or

• applicable law allows for the accumulated interest to be applied to the UPB.

Note: See Establishing Written Policies or Procedures in  A4-1-01, Staffing, Training, Procedures, and Quality Control RequirementsA4-1-01, Staffing, Training, Procedures, and Quality Control Requirements and  A4-1-02, Establishing Custodial Bank AccountsA4-1-02, Establishing Custodial Bank Accounts for additional details, including requirements for addressing unapplied funds held in the T&I custodial account and for reporting the status of funds in the custodial account to Fannie Mae.