Fannie Mae Condo Insurance Requirements and Approval Process

Fannie Mae requires condo associations to have a master insurance policy that covers at least 80% of the total insured value of the project.

The condo association must also have a reserve fund study, which is a report that outlines the association's financial reserves and identifies any potential funding shortfalls.

To get approved, condo associations must submit a package of documents to Fannie Mae, including the master insurance policy and the reserve fund study.

Fannie Mae will review these documents to ensure the condo association meets their minimum insurance requirements and has a well-managed reserve fund.

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Fidelity/crime insurance is required for all condo and co-op projects, with some exceptions. These exceptions include projects that qualify for a waiver of project review, condo projects reviewed under the Limited Review method, condo or co-op projects consisting of 20 units or less, and condo or co-op projects that would need fidelity/crime insurance coverage of $5,000 or less.

Fidelity/crime insurance is required to cover the dishonest or fraudulent acts of anyone who handles or is responsible for funds held or administered for the HOA or co-op corporation. This includes management agents, whether or not they receive compensation for services rendered.

The HOA or co-op corporation must have a fidelity/crime insurance policy that includes coverage for the acts of all parties with access to their funds, including the management agent. A management agent's own fidelity/crime insurance policy is not an acceptable alternative.

The named insured for property and flood insurance policies varies depending on the property type. For condo projects, the master property or flood insurance policy must designate the HOA as the named insured. If the condo's legal documents permit it, the master policy can specify an authorized representative of the HOA, including its insurance trustee, as the named insured.

Here is a table outlining the requirements for the named insured on property and flood insurance policies:

A "Fannie Mae approved condo" means the condo meets or exceeds Fannie Mae's requirements and is eligible for federal financing. The Fannie Mae loan limit for condos is $510,400, at least in most parts of the country.

Determining the required coverage amount for Fannie Mae condo insurance is a crucial step. The lender or servicer must review the project legal documents to verify if the HOA or co-op corporation adheres to certain financial controls.

To determine the minimum required amount of fidelity/crime insurance, you need to check if the HOA or co-op corporation adheres to one or more of the following financial controls: separate bank accounts for the working account and the reserve account, separate records and bank accounts for each HOA or co-op corporation, and two members of the Board of Directors must sign any checks written on the reserve account.

If the HOA or co-op corporation adheres to one or more of these controls, the fidelity/crime insurance coverage amount must equal at least the sum of three months of assessments on all units in the project. If the HOA or co-op corporation does not adhere to one or more of these controls, the fidelity/crime insurance coverage amount must equal the maximum funds that are in the custody of the HOA or co-op corporation, or its management agent, at any time.

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Here's a summary of the required coverage amounts in a table:

Determining the required coverage amount for fidelity/crime insurance is crucial, and it's based on whether the HOA or co-op corporation adheres to certain financial controls.

To determine if the HOA or co-op corporation has these controls in place, the lender or servicer must review the project legal documents or other sources acceptable to them. This includes checking for separate bank accounts for the working and reserve accounts, with appropriate access controls and monthly bank statements sent directly to the HOA or co-op corporation.

The management company must also maintain separate records and bank accounts for each HOA or co-op corporation, and not have the authority to draw checks on or transfer funds from the reserve account.

If the HOA or co-op corporation adheres to one or more of these financial controls, the minimum required amount of fidelity/crime insurance coverage is the sum of three months of assessments on all units in the project.

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Here's a table to help determine the minimum required amount of fidelity/crime insurance coverage:

In states with statutory fidelity/crime insurance requirements, Fannie Mae accepts those requirements in place of its own, making it easier for HOAs and co-op corporations to meet the necessary requirements.

Determining the right insurance coverage for your condo project can be a daunting task, but breaking it down into its essential components can make it more manageable. Fannie Mae has specific requirements for condo insurance, often referred to as the "Big 5" requirements.

To ensure your project meets Fannie Mae's standards, you'll need to have replacement cost coverage that covers 100% of the cost to replace the project improvements, including the individual units.

The building ordinance or law endorsement is also a must-have, which insures against the increased cost of repairs or improvements due to new codes or land use laws after a covered loss event.

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To protect against loss of a project's central heating or cooling system, a boiler and machinery/equipment breakdown endorsement is required, with a coverage amount equal to the lesser of $2 million or the insurable value of the buildings housing the boiler or machinery.

A severability or interest/Separation of insureds endorsement is also necessary, providing condo unit owners the ability to sue or file a claim against the HOA.

Here are the Big 5 Fannie condo insurance requirements in a concise list:

Insurance certificates and policies play a crucial role in meeting Fannie Mae's condo insurance requirements. Fidelity/crime insurance is required for all condo and co-op projects, with exceptions for projects that qualify for a waiver of project review, condo projects reviewed under the Limited Review method, condo or co-op projects with 20 units or less, or projects that would need fidelity/crime insurance coverage of $5,000 or less.

Some insurers issue a short-form certificate of insurance, which can be accepted by a lender or servicer if it shows all necessary information and is signed by the insurer. In this case, a complete text of the full policy must be retained in the lender or servicer's office.

Master or blanket policies are common in condo or co-op projects, where multiple units are covered under a single policy. To ensure compliance, lenders or servicers should be given a copy of the current master or blanket policy and a certificate of insurance showing that the individual unit is covered.

If a master or blanket policy is used, the lender or servicer must obtain individual evidence of insurance for each unit. This evidence must provide at least 10 days' written notice to the servicer if the policy is canceled or not renewed, or if any other change that adversely affects Fannie Mae's interests is made.

Some insurance carriers provide a data file instead of an original property insurance policy. To ensure that Fannie Mae's interests are protected, the data file must include sufficient information about the insurance policy, property, and borrower. The lender's or servicer's errors and omissions insurance policy must also acknowledge electronic data transfers and protect against losses incurred as the result of erroneous data files or transfers.

Here are the requirements for data files in lieu of original policies: