Bestwifeever
Moderator Emeritus
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- Sep 17, 2007
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Bestwifeever - Here is language regarding what Fannie Mae requires for homeowners insurance. I'm assuming the same logic applies to flood insurance. Seems like most mortgages would be covered by these requirements but maybe yours isn't. It might be worth pushing the issue with your lender since you seem to be paying for additional coverage you could never collect on.
Industry Alert Homeowners Insurance Policy Limits
Fannie Mae Requirements
The Department received written confirmation that Fannie Mae does not require the homeowner's insurance policy amount to be equal to the loan amount. Fannie Mae's guidelines for determining the amount of hazard insurance coverage are set forth in the Fannie Mae Selling and Servicing Guides. For any first lien mortgage (excluding a reverse mortgage), required coverage should be equal to the lesser of:Therefore, according to Fannie Mae, to determine the required amount of hazard insurance coverage for a loan delivered to Fannie Mae, Fannie Mae approved lenders are required to "compare the insurable value of the improvements, as established by the property insurer, to the unpaid principal balance of the loan. If the insurable value of the improvements is less than the unpaid principal balance, the insurable value will be the amount of the coverage required. If the unpaid principal balance of the mortgage is less than the insurable value of the improvements, the lender is required to calculate 80% of the insurable value of the improvements and compare the result to the unpaid principal balance. If the result of this calculation is equal to or less than the unpaid principal balance, then the unpaid principal balance will be the amount of the coverage required. If the result of this calculation is greater than the unpaid principal balance, the calculated figure will be the amount of coverage required."
- 100% of the insurable value of the improvements, as established by the property insurer; or
- the unpaid principal balance of the mortgage, as long as it equals the minimum amount (80% of the insurable value of the improvements) required to compensate for damage or loss on a replacement costs basis. If it does not, then the coverage that does provide the minimum required amount must be obtained.
Thanks, Buckeye--I'll try again with the lender. The above makes sense to me. Our homeowners insurance is based on dwelling re-building value plus contents plus liability, so the coverage exceeds the loan amount.
We've talked to people (agents, bankers, engineers) over the years, who basically all said the government is not interesting in reducing the pool of insured properties . Like I said, it's just irksome to have been put into a flood plain after the house had been standing here for 100 plus years and water is nowhere around--we have pretty much moved on because it is what it is and I feel for those who are threatened by floods. I only posted here to show that flood insurance isn't always cheap.