What’s happening?
Effective 2/7/2024, new guidelines were rolled out regarding condo master insurance policies in relation to conforming loans with Fannie Mae.
The Issues
Replacement Cost Value
The master property insurance policy must provide for claims to be settled on a replacement cost basis. Property insurance policies that provide for claims to be settled on an actual cash value basis are not acceptable. Policies that limit, depreciate, reduce or otherwise settle losses at anything other than a replacement cost basis are also not acceptable.
Carriers may place an endorsement on older roofs that would limit the replacement of the roof to Actual Cash Value. As this no longer is acceptable to the mortgage companies, Deeley will try to secure quotes that include Replacement Cost Value on all condominiums. Condominiums with older roofs should consider the option of roof replacement to be compliant with the new regulations.
Determining the Required Coverage Amount
The lender or servicer must verify that the property insurance coverage amount is at least equal to 100% of the replacement cost value of the project improvements, including common elements and residential structures, as of the current property insurance policy effective date.
The source that the lender or servicer uses to verify the coverage amount may be the property insurer, an independent insurance risk specialist, or other professional with appropriate resources to make such a determination. This may include, but is not limited to, a statement from the insurer or other applicable professional, a replacement cost estimator, or an insurance risk appraisal.Deeley Insurance Group recommends communities to get professional appraisals.
The Specifics
These guidelines (B7-3-03, Master Property Insurance Requirements for Project Developments (02/07/2024) (fanniemae.com)) are rolled out as of February 7th and affect all standard conforming loans in regards to home purchases.