Fannie Responding to Lender Concerns About Replacement Cost Property Insurance
Written By: Joel Palmer, Op-Ed Writer
Fannie Mae is re-evaluating a Selling Guide update related to property insurance that is scheduled to take effect June 1.
In February, Fannie announced a clarification to its Selling Guide related to monitoring and verifying property insurance coverage. Fannie said these were long-standing policies “intended to ensure the borrower has sufficient property insurance coverage in the event of a loss.” The announcement included:
Removal of coinsurance requirements
Reinforcing the requirement to obtain replacement cost value on the property
Communicating the need for lenders to confirm the borrower’s property insurance provides for replacement cost coverage.
The February announcement, the company said, did not change any policies related to property insurance. It only aimed to clarify the rules.
That apparently didn’t happen.
In last week’s Selling Guide update, Fannie said it’s heard concerns about the ability to comply with the policy regarding replacement cost value. Fannie noted it is necessary to confirm that replacement cost value is part of insurance coverage to ensure the property is fully covered.
“In light of the unique nature of these concerns, in coordination with Freddie Mac and FHFA and until further notice, we have decided not to cite findings for noncompliance related to obtaining property insurance replacement cost values for the purposes of determining coverage amount sufficiency, including any failure to obtain lender-placed insurance for a coverage shortage due to failure to utilize replacement cost value,” the update said.
“During this period, we will conduct additional research and industry engagement to evaluate the reported obstacles to lenders’ and servicers’ compliance with our requirements related to replacement cost value. We are taking this extraordinary step because of the critical role played by replacement cost value in determining the amount of property insurance coverage that protects both the borrower and the owner of the related mortgage loan. To that end, we look forward to engaging productively with stakeholders over the coming weeks.”
In a separate announcement last week, Fannie introduced enhancements to its Income Calculator tool to helper mortgage processors and underwriters account for self-employment income.
Fannie said the new web interface provides additional, no-cost functionality to Fannie Mae's calculator, which the company introduced in 2023 to help lenders streamline their processes and reduce loan defects. Lenders also still have the option to partner with one of Fannie Mae's authorized third-party technology service providers to automate the calculation of self-employment income streams during the underwriting process.
"With the launch of our new web interface, originators now can select the solution that best aligns with their processes and meets their needs, while saving time and improving certainty in the quality of the loan,” said Mark Fisher, Vice President of Single-Family Credit Risk Solutions.
Fannie noted that self-employed borrowers represent approximately 10 percent of the U.S. workforce and a growing number of Fannie Mae loan deliveries.
About the Author
As an NAMP® Opinion Editorial Contributor, Joel Palmer is a freelance writer who spent 10 years as a business and financial reporter and another 10 years in marketing for the insurance and financial services industries. He regularly writes about the mortgage industry, as well as residential and commercial real estate, investments, and retirement income planning. He has also ghostwritten books on starting a business, marketing, and retirement income planning.
