Fannie Mae/Freddie Mac Condo Insurance Requirements For 2024

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Condominium Associations need to know what type of condo insurance coverages Fannie Mae and Freddie Mac require.

Don’t worry – we’ve got you covered! In this blog post, we’ll be breaking down the critical information you need to know about Fannie Mae/Freddie Mac condo insurance requirements for 2023.

We’ll discuss what specific types of coverage are required and provide some tips on ensuring your policy meets all the necessary conditions.

So stick with us, and you can rest assured that your loan will go smoothly when it comes time to close!

Requirements For A Condo To Be Considered For Approval

Overview of Fannie Mae/Freddie Mac Condo Insurance Requirements

In 2024, Fannie Mae and Freddie Mac updated their condo insurance requirements for lenders on mortgage loans.

When it comes to condo financing, it’s essential to understand the Fannie Mae condo insurance requirements set by Fannie Mae and Freddie Mac.

These government-sponsored entities have outlined specific HOA insurance requirements to ensure compliance and protect property investments.

Here is an overview of the condo insurance requirements for 2024:

  1. Guide Section Revision 5701.2 (02-26-2024): In the Guide Section Revision 5701.2 dated February 26, 2024, it states that condo projects financed by Fannie Mae/Freddie Mac must have insurance that complies with Chapter 4703 requirements. This insurance coverage should extend to both the Common Elements and Condominium Units. It is important for condo projects seeking financing from Fannie Mae/Freddie Mac to ensure they have the necessary insurance coverage to meet these requirements. Source: Guide Section Revision 5701.2 (02-26-2024)

  2. Guide Section 4703.2: According to Guide Section 4703.2, the insurance policy limit must be sufficient to cover the full replacement cost required for both the Common Elements and, if necessary, the Condominium Units. This section aims to provide guidance on the coverage needed for individual units and common areas within the condo project. It is essential for condo projects to ensure that their insurance policies adequately reflect the replacement costs to protect against potential damages or losses. Source: Guide Section 4703.2

  3. New Lender Requirements: According to the new lender requirements, there are several key provisions that lenders must adhere to:

    1. Adequate Funding for Insurance Deductibles: Lenders must ensure sufficient funding is available to cover Condo master insurance deductibles. This is important to ensure that there are enough funds to cover the deductible amount in the event of a claim.
    2. Reserves Allocation: Lenders are required to allocate at least 10% of the budget towards reserves. This provision emphasizes the importance of financial reserves to address unexpected expenses or repairs.
    3. Limit on Rental Property Income: Lenders must ensure that no more than 15% of a borrower’s income comes from rental properties. This requirement aims to maintain a balance between primary residential ownership and rental income sources.

    These new lender requirements aim to promote responsible lending practices and ensure the financial stability of borrowers and the overall housing market. Source: Lender Requirements

  4. Changes and Updates for 2024: In 2024, both Fannie Mae and Freddie Mac have introduced updates to their guidance for condo and co-op projects. These updates come after a previous letter from Fannie Mae in 2021 that implemented temporary requirements. It is important for lenders and borrowers to stay informed about these changes to ensure eligibility for financing. Freddie Mac is also expected to release additional guidelines early in 2024, further addressing project eligibility. These updates reflect the ongoing efforts of Fannie Mae and Freddie Mac to adapt to evolving market conditions and provide clear guidance for condo and co-op financing. Source: HousingWire
  5. Impact on Condo Financing: Compliance with Fannie Mae/Freddie Mac condo insurance requirements is crucial for condo projects seeking financing. These insurance requirements are designed to ensure the protection of individual units and mitigate potential risks. It is important for condo associations to meet these insurance requirements, as failure to do so may impact a project’s eligibility for financing. Source: Future of Condo Lending

It’s important for buyers, sellers, and lenders to stay informed about these requirements and any updates or changes that may occur throughout 2024.

Consulting official Fannie Mae and Freddie Mac guidelines is recommended to ensure accurate and up-to-date information regarding condo insurance requirements.

Impact of Insurance Requirements on Condo Market Dynamics

The 2024 updates to Fannie Mae and Freddie Mac’s condo insurance requirements are poised to significantly influence the condo market. Stricter Condo master insurance standards may lead to shifts in property values as associations scramble to meet the new demands. These changes could impact buyer demand, especially in regions where associations face challenges in securing appropriate coverage. Furthermore, the competitiveness of condo projects may be affected, with well-insured properties potentially becoming more attractive to both buyers and lenders.

Staying Compliant with Fannie Mae Condo Master Insurance Requirements

Condominium associations must conduct annual reviews of their condo master insurance policies to stay aligned with evolving standards. Proper documentation, including certificates of insurance and detailed policy breakdowns, ensures compliance with Fannie Mae condo insurance requirements and prevents financing delays. Proactively addressing coverage gaps and maintaining updated records will help associations meet strict hoa insurance requirements and secure eligibility for loans.

Strategies for Condo Associations to Meet Updated Insurance Standards:

Position this section after discussing the potential market impact, or near the conclusion of the article. This ensures that readers understand the importance of compliance before diving into actionable advice.

What Is Condo Master Insurance and Why It Matters in 2024

Condo master insurance, also referred to as a master condo insurance policy or HOA insurance, is the policy purchased by the condominium association to protect the building’s shared structures and common areas. This includes the roof, elevators, HVAC systems, sidewalks, and sometimes internal unit elements like drywall or flooring.
In 2024, Fannie Mae and Freddie Mac require that this policy provides full replacement cost coverage for all shared property and building infrastructure. The policy must also include liability insurance for injury or property damage that may occur in common areas. If the master insurance policy excludes hazards such as windstorms, water damage, or vandalism, the association must purchase supplemental insurance to comply.
Keeping detailed documentation, including policy breakdowns and coverage certificates, is essential. These documents support mortgage approvals and provide proof of compliance during audits or legal claims related to personal injury, accident, or structural failure.

Explanation of HO-6 Policy and Why it is Essential for Condominium Owners

The HO-6 policy, also known as Condo Insurance or Homeowners Unit Owners Insurance, is a type of home insurance specifically designed for condominium owners.

It is important because it covers the unit owner’s property that is not covered by the condominium association’s master policy. This includes items such as furniture and other personal property, as well as protection from certain kinds of liability.

The HO-6 policy also covers certain fixtures inside the unit itself, such as flooring and cabinetry. To be eligible for Fannie Mae and Freddie Mac condo insurance requirements in 2024, condo owners will need an HO-6 policy if the Association master policy does not include the contents of the units.

Chapter B7-3 Property and Flood Insurance

Chapter B7-3 of the Fannie Mae Selling Guide outlines a condominium association’s property and flood insurance requirements.

To meet these requirements, the Association must provide proof of a flood insurance policy if the condominium is located in a FEMA Special Flood Hazard Zone (SFHA). 

The Condominium Association is required to obtain Flood coverage of at least 80% of the building replacement value for each building in a Flood Zone up to a maximum of $250,000 per unit.

Here is an overview of the key information for 2024:

  1. Flood Insurance Requirements: According to the Fannie Mae Selling Guide, flood insurance is a requirement for all property types. This policy is in place to mitigate the risk of potential flood-related damages and protect homeowners and lenders. By ensuring that properties have adequate flood insurance coverage, Fannie Mae aims to minimize the financial impact of flood events and provide a safeguard for property owners.

  2. Increased Flexibilities and New Requirements: According to the Fannie Mae Selling Guide Announcement SEL-2022-10, there have been clarifications, increased flexibilities, and new requirements implemented for B7-3 Property and Flood Insurance. These changes aim to provide further guidance and flexibility for lenders and homeowners in complying with the flood insurance requirements. The specific details of these updates can be found in the announcement. Source: Fannie Mae Selling Guide Announcement SEL-2022-10

  3. April 2024 NFIP Guidance Updates: According to the April 2024 NFIP Flood Insurance Manual Guidance Updates issued by FEMA, program changes and guidance updates will be implemented in April 2024 for the National Flood Insurance Program (NFIP). These updates are aimed at enhancing the overall effectiveness and efficiency of the NFIP. The specific details and nature of these changes can be found in the guidance updates provided by FEMA. Source: April 2024 NFIP Flood Insurance Manual Guidance Updates

  4. Mandatory Flood Insurance Coverage: According to my search results, as of April 1, 2023, new Citizens’ personal residential policies that include wind coverage require mandatory flood insurance coverage. This mandate is in place to ensure that homeowners in specific areas have sufficient protection against flood-related risks. It is important for homeowners to comply with this requirement to safeguard their properties and mitigate potential financial losses. Source: HelpWithMyBank.gov

  5. Expiration of NFIP Authorities: According to the Federal Emergency Management Agency (FEMA), key National Flood Insurance Program (NFIP) authorities, including the ability to issue new insurance contracts, will expire if they are not renewed after February 2, 2024. This expiration highlights the importance of continuous efforts to reauthorize and strengthen the NFIP. It is crucial for policymakers and stakeholders to work towards ensuring the long-term stability and effectiveness of the program to provide necessary flood insurance coverage to homeowners and communities. Source: FEMA

It’s important for homeowners, lenders, and insurance providers to stay updated on the specific requirements outlined in Chapter B7-3 Property and Flood Insurance. Consulting official Fannie Mae guidelines and FEMA’s NFIP resources is recommended for accurate and up-to-date information regarding property and flood insurance requirements in 2024.

What is needed for a Condo Review.

Required Coverages for Condominium Associations

  • Evidence of 100% replacement coverage for all buildings/units in the condominium project, with some exceptions;
  • Evidence of at least $1 million in general liability coverage;
  • Separation of insureds endorsement under the general liability coverage;
  • Fidelity/crime coverage for associations of at least 20 units;
  • Building ordinance/law endorsement;
  • Equipment Breakdown endorsement unless units have their own individual HVAC within the unit;
  • Fannie Mae now requires the following perils to be covered: 
    • Fire
    • Lightning
    • Explosion
    • Windstorms (including named storms as designated by the US National Weather Service or the National Oceanic and Atmospheric Administration by a name or number)
    • Hail
    • Smoke
    • Aircraft
    • Vehicles
    • Riot or civil commotion
    • Vandalism
    • Sprinkler leakage
    • Sinkhole Collapse
    • Volcanic Eruption
    • Falling objects
    • Weight of snow, ice, sleet, or water damage

If a master property insurance policy excludes or limits coverage of any of the required perils, the HOA or co-op corporation must obtain an acceptable stand-alone property insurance policy that provides adequate coverage for the limited or excluded peril.

It’s also important to note that condo associations need to maintain comprehensive records of their insurance policies and coverage details to meet Fannie Mae and Freddie Mac master insurance requirements. These records should be readily accessible in case of audits or requests from lenders during the loan approval process. Proper documentation, including certificates of insurance and detailed coverage breakdowns, ensures that associations can provide proof of compliance quickly and efficiently, helping to prevent any delays in financing or transactions.

Additionally, as condo insurance requirements evolve, it’s crucial for associations to conduct annual reviews of their insurance policies. These reviews should assess whether their current coverage still aligns with the latest Fannie Mae and Freddie Mac standards, especially if updates or changes have been implemented. Staying proactive with these reviews can help condo associations avoid unexpected gaps in coverage and ensure they remain eligible for financing under the government-sponsored enterprises’ guidelines.

Reviewing your policy periodically to ensure it meets Fannie Mae/Freddie Mac master insurance requirements is essential. Contact Condo-Approval Professionals today to ensure your Condominium master insurance policy meets Fannie Mae/Freddie Mac insurance requirements.

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