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B-6-01, Lender-Placed Insurance Requirements (10/14/2015)

Introduction
This topic contains the following:

Servicer Responsibilities Related to Lender-Placed Insurance

If the servicer cannot obtain evidence of acceptable property or flood insurance for a property securing a mortgage loan, the servicer must obtain lender-placed insurance in compliance with Fannie Mae’s insurance requirements. The following table provides the servicer’s responsibilities related to lender-placed insurance.

✓ The servicer must...
 

Only issue lender-placed insurance coverage after it makes unsuccessful attempts to obtain evidence of insurance in accordance with applicable law.
 

Not use a lender-placed insurance carrier that is an affiliated entity, as defined below, for a lender-placed insurance policy, including any captive insurance or reinsurance arrangements with an affiliated entity.
 

Exclude any lender-placed insurance commissions or payments (including any incentive based compensation regardless of its designation as commission, bonus, fees, or other types of payments from the servicer’s lender-placed insurance carrier; for example, underwriting bonuses or other payments based on insurance loss ratios) earned on a lender-placed insurance policy by the servicer, broker, or any affiliated entity, as defined below, from the lender-placed insurance premiums charged to the borrower or submitted for reimbursement from Fannie Mae.
 

Provide copies of its lender-placed insurance policy, including any other contractual arrangements between the servicer and a lender-placed insurance carrier, upon Fannie Mae’s request.
 

Provide any documentation or data relating to its lender-placed insurance activities and lender-placed insurance coverage requested by Fannie Mae within 30 days of Fannie Mae’s request.
 

In compliance with applicable law:

  • terminate any lender-placed insurance, and

  • refund all lender-placed insurance premiums and fees charged during any period of coverage overlap.

For purposes of lender-placed insurance, an affiliated entity is defined as

  • an entity owned or controlled, in whole or in part, by the servicer including, but not limited to, a subsidiary or joint venture of the servicer;

  • an entity that owns or controls, in whole or in part, the servicer (for example, the parent company of the servicer); or

  • an entity under common ownership or control with the servicer (for example, two subsidiaries of the same parent company).

An affiliated entity does not include a publicly traded company where the servicer owns less than 5% of its stock.

Lender-Placed Insurance Deductible Requirements

The servicer must set the deductible for a lender-placed property insurance policy based on the following table.

If the coverage amount is... Then the required deductible is...

less than $100,000

$1,000.

from $100,000 up to and including $250,000

$2,000.

greater than $250,000

$2,500.

Note: Lender-placed flood insurance, and lender-placed wind- or hail-only insurance policies are excluded from this requirement.

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