Servicing Guide

Published September 9, 2020

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B-5-01: Insured Loss Events (07/15/2020)

This topic contains the following:

 

Servicer Responsibilities

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.

If… Then the servicer must…
the property cannot be legally rebuilt

use any insurance loss proceeds to reduce the outstanding mortgage loan debt.

the property can be legally rebuilt determine the appropriate actions based on the status of the mortgage loan at the time of the loss event, as described below.

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…
 

Obtain complete details on the damage to the property and determine the needed repairs.

 

Discuss with the borrower any plans for repairing the property.

Note: If the servicer is unable to establish contact with the borrower or the property is abandoned, the servicer must ensure the property is maintained and secured by complying with the requirements in E-3.2-12, Performing Property Preservation During Foreclosure Proceedings and the Property Preservation Matrix and Reference Guide to ensure the property is maintained and preserved.

  Immediately issue the borrower a check for the amount by which the insurance loss proceeds
  • Exceed the UPB, accrued interest, and advances (unless the borrower agrees to other arrangements with the servicer), and/or

  • Includes payment for contents (for example personal property) or living expenses.

  Disburse the insurance loss proceeds in accordance with this Guide (see Disbursing Insurance Loss Proceeds Based on the Mortgage Loan Status and the Borrower’s Intent for additional information).

Note: The servicer and/or the insurance company may not have reason to believe that a supplemental claim will be filed for additional damages at the time the initial loss proceeds are paid by the insurer; therefore, the servicer must disburse any insurance loss proceeds based on the requirements in this Guide without regard to whether supplemental loss proceeds will be received.

  Deposit any funds not disbursed into an interest-bearing account (see Depositing the Insurance Loss Proceeds Not Disbursed for additional information).
 

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.

 

Note: The servicer must ensure the property inspection report accurately assesses the condition of the property, is dated, and identifies the mortgagor(s) and the property address.

 

 

Conduct a final inspection to ensure all repairs are completed if the mortgage loan is 31 days or more delinquent at the time of the loss event.

 

Obtain the proper lien releases, if applicable.

 

Prohibit payment of fees out of the insurance loss proceeds to any public adjusters or other third parties retained by the borrower to assist with the recovery of those proceeds, unless otherwise agreed to by Fannie Mae in writing.

 

Disbursing Insurance Loss Proceeds Based on the Mortgage Loan Status and the Borrower's Intent

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.

Mortgage Loans Current or Less Than 31 Days Delinquent:

The servicer must follow the requirements described in the following table for a mortgage loan that is current or less than 31 days delinquent at the time of the loss event.

If the insurance proceeds are… Then the servicer…

less than or equal to $40,000

is authorized to release the insurance loss proceeds in one payment.

greater than $40,000

  • 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

  • must disburse any remaining funds based on periodic inspections of the progress of the repair work.

 

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 Option and disburse the insurance loss proceeds as outlined in the following table.

If the insurance loss proceeds are… Then the servicer…
less than or equal to $5,000 is authorized to make the disbursement in one payment.
greater than $5,000
  • must release an initial disbursement of insurance loss proceeds of 25% of the total insurance loss proceeds but no more than $10,000, and

  • must disburse the remaining funds in increments not to exceed 25% of the insurance loss proceeds following inspection of the repairs.

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.

The servicer must…
 

Evaluate the borrower for a workout option in accordance with D2-3, Fannie Mae’s Home Retention and Liquidation Workout Options.

 

Follow the requirements in E-3.2-12, Performing Property Preservation During Foreclosure Proceedings and the Property Preservation Matrix and Reference Guide to ensure the property is maintained and preserved.

 

Submit a Report of Property Insurance Loss (Form 176) to Fannie Mae’s SF CPM division (see F-4-03, List of Contacts within five business days of the servicer receiving notification of the damages.

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…
  Follow the requirements in E-3.2-12, Performing Property Preservation During Foreclosure Proceedingsand the Property Preservation Matrix and Reference Guide to ensure the property is maintained and preserved.
  Submit Form 176 to Fannie Mae’s SF CPM division (see F-4-03, List of Contacts within five business days of learning of the borrower’s intent not to repair or restore the property.

If the borrower is eligible for a workout option in accordance with D2-3, Fannie Mae’s Home Retention and Liquidation Workout Options, the servicer must ensure the borrower has assigned any insurance loss proceeds to Fannie Mae, if required.

If the borrower is not eligible for a workout option in accordance with D2-3, Fannie Mae’s Home Retention and Liquidation Workout Options, but the servicer has determined that a workout option is appropriate, it must submit the case to Fannie Mae for review through Fannie Mae’s servicing solutions system.

If the mortgage loan progresses to foreclosure sale, the servicer must follow the requirements in E-3.3-05, Issuing Bidding Instructions for determining the foreclosure sale bid amount.

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

If the mortgage loan progresses to a… Then the servicer must…
short sale at closing, remit the remaining balance of any insurance loss proceeds via CRS using remittance code 332.

Mortgage Release or foreclosure sale

  • remit the remaining balance of any insurance loss proceeds the servicer is maintaining on a mortgage loan within 30 days of issuing the REOGram via CRS using remittance code 332, and

  • wire any insurance loss proceeds that were a result of a claim filed by Fannie Mae's property recovery firm or that were received by the servicer after issuing the REOgram to Fannie Mae within 10 business days of receipt.

Note: The servicer must not issue any insurance loss proceeds to pay fees to its property recovery firm or any other servicer expenses, and Fannie Mae will not reimburse fees to any servicer's property recovery firm or for any other related servicer expense.

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 Requesting Reimbursement for Property Inspections and Property Preservation Expenses in F-1-05, Expense Reimbursement.

 

Performing Remote Insured Loss Repair Inspections

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.

The photo and/or video must…
  Allow the servicer to determine the repairs are from the location of the property.
  Authenticate when taken and that such photos or video were not altered in any way.
  Clearly identify the repairs that are being documented and confirm the repairs
  • were completed in accordance with the insurance adjuster’s itemized estimate and the repair plan, and

  • do not affect the safety, soundness or structural integrity of the property or the ability to obtain an occupancy permit.

 

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.

 

 

Depositing the Insurance Loss Proceeds Not Disbursed

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 interest-bearing account must…
 

Be a T&I custodial account with a depository institution that meets Fannie Mae’s eligibility criteria for custodial depositories.

 

Be for the borrower’s benefit.

 

Yield interest equivalent to the interest the borrower could expect to obtain from a savings or money market account.

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 E stablishing Written Policies or Procedures in A4-1-01, Staffing, Training, Procedures, and Quality Control Requirements and A4-1-02, 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.

 

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