Dear Friends and Colleagues,

We want to extend a heartfelt thank you to everyone who participated in our recent MGIC/CondoTek insurance webinar! Your engagement and enthusiasm made the event a resounding success, and we are truly grateful for your presence.

We were thrilled to see such a great turnout, and it was fantastic to hear all of your insightful questions. It’s clear that there is a strong interest in learning more about condominium insurance, and we appreciate your commitment to enhancing your knowledge in this vital area.

As promised, we have compiled answers to some of the questions raised during the session. We hope you find this information helpful as you navigate the world of condo insurance.

If you have further questions or need more information, please don’t hesitate to reach out to us at [email protected]. Our team is always here to assist you and provide the educational resources you need.

Thank you once again for joining us, and we look forward to seeing you at our future webinars. Together, we can continue to grow and learn about all things condo!

Warm regards,

The CondoTek Team

Presentation

Recording
 

QUESTIONS:

• Are inflation guard and inflation factor 2 different things? I have a condo, and Fannie Mae says inflation factor is not acceptable and it must be inflation guard. Insurance agent said it is the same, the insurance carrier calls it insurance factor. 

ANSWER: Inflation guard automatically increases the policy’s coverage limit each year, while the inflation factor is a standard measurement that is used to adjust coverage limits.   

 

• Wildfire coverage excluded – I recently had a master policy exclude wildfire. I contacted FNMA and they indicated “wildfire” was not a required peril however we had to document the property was not on a fire hazard zone. The project was FNMA approved-  policy was dated after the FNMA Review. 

ANSWER:  No difference between wildfire and fire.  Fannie Mae guide section B7-3-03 lists ‘Fire’ as a required peril, not ‘wildfire’
 

• In regards to inflation guard, is automatic increase in building limit acceptable? Typically see it at 6% plus. 

ANSWER: Yes. Inflation Guard automatically increases the coverage limit each year, so if you have a property insurance certificate that reflects 6%, that would be acceptable. 
 

• Geographic is the only time loss assessment can cover – did I understand that correctly? 

ANSWER: If you are referring to property insurance deductibles that exceed 5%, you are correct! Fannie will allow the sum of per-unit deductibles to exceed 5% of the property insurance coverage amount ONLY if the per-unit deductibles are for “named perils specific to a geographic area where such coverage is common and customary”.  In that case, the borrower’s policy must include coverage for the applicable peril(s), coverage for the deductible assessments levied on them for the applicable peril(s), and loss assessment coverage in an amount sufficient to cover assessments that exceed 5% of the master property coverage amount, divided by the number of units. 

 

• Can you clarify the difference between the Inflation Guard and the Building Ordinance or Law Coverage B that covers increased construction costs? 

ANSWER: Inflation guard automatically increases the policy’s coverage limit each year, whereas O&L coverage B is for demolition, and O&L coverage C is specifically for the increased construction costs that are associated with the actual rebuilding or repairing of the structure to the code that existed at the time of the loss 

 

• The association is insured per the most recent appraisal. Per the attached Master Certificate of Insurance the Valuation is Replacement Cost ($112,681,300) and the Total Insurable Value per the most recent appraisal is $112,681,300.  Is this acceptable? 

ANSWER: Total Insured Value is the maximum amount that will be paid by the insurance company in the event of a loss.  Since your insurance valuation / insurance appraisal replacement cost amount matches the certificate’s property insurance coverage limit, that amount would be acceptable.  But don’t forget to always check for Inflation Guard and Ordinance or Law coverages when applicable.
 

• Please address co-insurance and how it affects our project insurance. 

ANSWER: In February 2024 Fannie Mae removed the coinsurance requirements and reinforced the requirement to obtain the replacement cost value and confirm the HOA’s property insurance policy provides for sufficient replacement cost coverage.  

 

• Should the lender be asking specifically about the roof? If we’ve obtained all appropriate insurance and confirmed 100% RCV of project improvements, etc. – everything is meeting guidelines – except nothing addresses the roof. 

ANSWER: It is not mandatory to double check, but if you are reaching out to the insurance agent for other items, it is beneficial to ask. Our team actually confirms on every condominium insurance review that all claims are Replacement Cost and nothing in the policy is Actual Cash Value. 

 

• Functional r/c not being accepted by Fannie & Freddie – is that solely for condo projects or does that apply to any property type? 

ANSWER:  Functional RC not being accepted applies to all types – anything that limits, depreciates, or otherwise pays less than the full replacement cost value of the item would not be accepted for any property types. 

 

• Does it have to say 100% GUARANTEED replacement cost or is 100% replacement cost sufficient? 

ANSWER: 100% Replacement Cost is sufficient, as is Guaranteed Replacement Cost. 

 

• Do fair plans such as Citizen allow for a higher deductible? 

ANSWER: B7-3-03 states that the maximum allowable deductible for all required property insurance perils is 5% of the master property insurance coverage amount (except per-unit, geographic specific, named perils). It does not indicate that State FAIR plans can have higher deductibles. But if the FAIR plan is the only coverage that can be obtained at the time of the loan closing or policy renewal, we would suggest reaching out to Fannie Mae to ask if it can be permitted, referencing Guide Section B7-3-01.   

 

• We have had some push back from some insurance companies about being added as an additional interest or mortgagee on a master policy. Is there any guidance on why some do this with no issues and others argue our right to be listed? 

ANSWER: Section B7-3-08 does say the borrower’s property insurance policy must provide for written notice to the named insured and mortgagee(s) before the insurer can cancel the policy.  But this applies to individual property insurance policies maintained by the borrower and does not apply to master property insurance policies for project developments. 

 

• What is the difference between Extended Replacement Cost (125% ERC) and an inflation guard endorsement? ….wouldn’t 125% ERC supersede an inflation guard endorsement (such as 4% inflation guard included)? 

ANSWER: Some situations may not require Inflation Guard, depending on which Agency you are reviewing for.  Overall, what a lender needs to establish is: if certain endorsements or otherwise are missing, are compensating factors providing for equivalent or better coverage than what the guide requires? 

 

• Fannie says that Inflation Guard is required UNLESS it is not available in that area.  Are you seeing any areas where it is not available? 

ANSWER: We are not currently tracking specific cities or states that have said the coverage is not available.  But various agents have stated they do not offer inflation guard because the policies already have 125% Extended Replacement cost. 

 

• Are you seeing and servicer’s giving pushback on these updates at renewal? 

ANSWER: We are not currently experiencing this, but when the insurance is found to be noncompliant, we pass that information on to our lender clients rather than the insurance agent directly. 

 

• There’s no slides for the waiver of subrogation; can we email specific questions for that to someone? 

ANSWER: Please email [email protected] and he’ll forward your question to one of our team members. 

 

• If a borrower is purchasing a condo and the master condo policy does not have enough coverage per unit, how much minimum coverage should be on the borrowers HO6? 

ANSWER: We cannot provide advice on HO-6 in general, outside the scope of project reviews, but HO-6 cannot be used to make up deficiencies in the master condo insurance policy except where there is an excessive per unit deductible for geographic specific perils.  In all other cases, a deficiency in the master HOA policy cannot be cured by the individual unit owners policy UNLESS the governing documents specify owners are responsible for walls-in and that is the cause of the “insufficient coverage.” 

 

• I did not see liability or employee dishonesty in your presentation? 

ANSWER: This presentation was specific to property insurance, but we welcome your questions on other insurance types! 

 

• Are the agencies communicating all these requirements to the condo associations, so they can stay compliant? 

ANSWER: We think that Fannie and Freddie do a good job of keeping the industry up to date with their lender letters and other bulletins.  Plus, the guidelines are always available up to date online.  We always recommend that property managers and HOAs should be consulting regularly with industry experts to keep and maintain their warrantable status, and to understand how the landscape is changing.   

 

• Can you revisit the difference between Freddie and Fannie on Inflation guard? Will Freddie allow it if there is Guaranteed Replacement Cost? We see this as a response many times from providers why they don’t have inflation guard? 

ANSWER: Fannie’s guide does not include the wording “when it is applicable to the coverage and available in the insurance market.” Fannie only includes the latter half.  As a result, some situations such as Extended Replacement Cost or Guaranteed Replacement Cost may not be sufficient to satisfy Fannie Mae.  Same with certain types of annual renewals, which might be accepted by Freddie Mac if certain conditions are met.  We are hearing that Fannie Mae will accept Guaranteed Replacement Cost in some cases if the right documentation is provided, and we hope to share more information on that at a future session once we learn more. 

 

• Are we able to get a copy of your lending compliance report? 

ANSWER: Certainly! Please email [email protected] for a sample. 

 

• If the condo project does not cover walls in what are the rules on HO6 

ANSWER:  If the HOA’s master property insurance policy does not cover the interior or improvements of a unit, the borrower must maintain an individual property insurance policy in an amount sufficient to restore the unit to its condition prior to a loss event.  Coverage sufficiency should be based on the best information known or available to seller/servicers, which may include details obtained from the borrower, in collaboration with the insurer, the HOA or co-op corporation legal documents, or other professional with appropriate resources to make such a determination. Fannie Mae recommends that borrowers be encouraged to closely collaborate with an insurance professional to determine their individual insurance needs. 

 

• Will you discuss coverage requirements for HO6 policies?  Is there a certain amount required? 

ANSWER: The borrower must maintain their policy in an amount sufficient to restore the unit to its condition prior to a loss event.  Coverage sufficiency should be based on the best information known or available to them, which may include details obtained from the borrower, in collaboration with the insurer, the HOA or co-op corporation legal documents, or other professional with appropriate resources to make such a determination. Fannie Mae recommends that borrowers be encouraged to closely collaborate with an insurance professional to determine their individual insurance needs. 

 

• We’re seeing a lot of pushback here in NC regarding deferred maintenance. Is this a country wide problem? We mitigate this with reserve study or 5 years of HOA meeting minutes. Anyone else dealing with this on a regular basis as a trend? 

ANSWER: We are encountering challenges with this as well. Some management companies and associations are not comfortable answering the questions related to deferred maintenance and critical repairs.  Recently performed Reserve Studies (that include a site inspection) have been an invaluable tool in helping us to complete the deferred maintenance portion of our reviews.

 

• We are located in New England where we often see ice damming and water coverage lumped with over 5% deductible. Do you have any guidance on this? 

ANSWER:  According to a recent Fannie Mae training, ice damming is common and customary in the Northeast.  But unfortunately, it did not mention that water damage would be common / customary and as a result, the sum of per-unit deductibles for water damage cannot exceed 5% of the HOA’s property insurance amount. 

 

• In the follow up communication can you add details on the ACV for roof when the project is 100%RC?  

ANSWER: Claims must 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.  Even if just one component (like the roof) is actual cash value.  You may see on the Reserve Study that a roof was recently replaced or have a new building with a roof that has not yet aged. But even in these circumstances ACV for the roof is not permitted.
 

• What is the minimum coverage for an HO6 policy? Is it still 20% of the appraised value? 

ANSWER: The borrower must maintain their policy in an amount sufficient to restore the unit to its condition prior to a loss event.  Coverage sufficiency should be based on the best information known or available to them, which may include details obtained from the borrower, in collaboration with the insurer, the HOA or co-op corporation legal documents, or other professional with appropriate resources to make such a determination. Fannie Mae recommends that borrowers be encouraged to closely collaborate with an insurance professional to determine their individual insurance needs. 

 

• I am in Consumer Lending such as Heloc’s and IEL’s . Is there any tips or specifics I should be considering when I am reviewing the policies for Condo Ins? 

ANSWER: We think this is outside the scope of a typical purchase or refinance review required, as there are different considerations on revolving credit and other loan product types
 

• Are more people being directed to CCRs when asked to address walls in vs walls out coverage on the mater certs? 

ANSWER: We have not seen a trend in agents directing folks to governing documents versus answering the question in an email reply.   

 

• Can you speak with general liability and fidelity insurance requirements? 

ANSWER 1 of 2: You’ll be looking for the HOA’s Liability insurance to reflect at least $1mil each occurrence (except in California where you can expect to see higher limits because of state statues).  In addition, you should confirm their policy includes Severability of Interest or Separation of Insureds.  See B7-4-01 for details. 

ANSWER 2 of 2: Fidelity insurance requirements can be found in section B7-4-01 and apply to attached condo projects consisting of 20 or more units, when performing a Full Review. Some exceptions are listed in the guide.  Generally, if one of the financial controls listed in this section of the guide are in place, then the HOA can carry the reduced coverage amount of 3 months worth of annual HOA dues.
 

• Does Fannie have a requirement for ACV or RC coverage on a condo master policy? 

ANSWER: Claims must 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.  Even if just one component (like the roof) is actual cash value.
 

• If I wanted to go over some issues I am having getting projects reapproved with FNMA regarding peril deductibles, is there a point of contact I can get to help me understand a little bit better what I can get from an insurance company to get a project approved? 

ANSWER: Fannie Mae’s Learning Center is a great tool, as it offers property insurance training that our team has found very helpful. In addition, we can answer general questions. Please feel free to email [email protected] and he’ll forward your question to one of our team members. 

 

• Does there happen to be a checklist of items to look for when reviewing an insurance policy? 

ANSWER: Our team does not have a checklist to share, as we work out of a special platform that we developed, in conjunction with regularly visiting the Fannie Mae guidelines to ensure that our entire review team is up to date on Agency guideline changes.
 

• If the insurance company states they don’t have the Inflation Guard coverage available in the area is this acceptable? 

ANSWER: Yes.  You can use the insurance agent’s email confirmation to document the file and clear inflation guard.