General / Other
loss payee clause
A loss payee clause (mortgagee clause) legally designates the lender as a party entitled to receive insurance proceeds on a covered loss, protecting the lender's collateral interest. Requirements vary by agency and lender — including exact naming conventions, MERS restrictions, and transfer obligations.
Guideline Requirements
Fannie Mae — Conventional Loans
Fannie Mae draws a critical distinction between a mortgagee clause and a loss payable clause — they are not interchangeable:
- "The applicable insurance policy must include (or have attached) a 'standard' or 'union' mortgage clause (without contribution) in the form customarily used in the area in which the property is located. A loss payable clause in lieu of a mortgagee clause is not acceptable."
Who must be named:
- When Fannie Mae is NOT named: the lender's name, followed by the phrase "its successors and/or assigns," and mailing address must be shown as the mortgagee.
- When Fannie Mae IS named: the clause must read — "Fannie Mae, in care of (insert servicer's name and address here)."
- MERS restriction: "If the mortgage is registered with MERS and is originated naming MERS as the original mortgagee of record, MERS must not be named as mortgagee or loss payee on any property insurance policy."
Upon servicing transfer, the outgoing seller must update all applicable policies:
- "Change the loss payee or mortgagee clause to include Servicer in the fire and extended coverage policy for the Mortgaged Premises... Change the loss payee or mortgagee clause to include Servicer in the flood insurance policy and in the catastrophe insurance policy, if any."
Freddie Mac — Conventional Loans
- "All policies documenting insurance coverage(s) obtained in accordance with Freddie Mac's requirements for 1- to 4-unit properties must have the insurance industry's standard mortgage clause. Such clause must provide that the insurer will notify the named mortgagee at least 10 days before cancellation of the policy."
- Who to name: "(name of Seller/Servicer), its successors and assigns" — not Federal Home Loan Mortgage Corporation, unless coverage would be impaired.
- MERS restriction: "If the Mortgage is registered with MERS and is originated naming MERS as the original mortgagee of record, under no circumstances may MERS be named as loss payee on any property insurance policy."
- Servicer designation on drafts: "The Servicer may be named as loss payee on insurance drafts and must comply with any applicable law and, where applicable, any requirement of the FHA, VA, RHS or MI."
FHA — Forward Mortgages
- "If the Mortgagee requires the Borrower to purchase Hazard Insurance, the Mortgagee must: allow Borrowers to choose their own hazard insurance company; be named as a 'Loss Payee' on the hazard insurance policy; and escrow sufficient funds for the payment of a renewal premium."
HECMs (Reverse Mortgages):
- "The Mortgagee must: maintain the amount for the period of time that is necessary to protect the Mortgagee's investment; be named as a 'Loss Payee' on the Hazard Insurance policy."
Flood Insurance (Title I Loans):
- "The amount of flood insurance must be no less than the unpaid balance due on the Title I Loan. The Title I Lender must be named as a loss payee."
- Documentation: "The Lender must include in the case binder a copy of the insurance policy showing the amount of coverage and name of the loss payee."
Lender Overlays / Matrix
Nations Direct Mortgage — Non-QM
- Hazard insurance: "The hazard insurance policy must contain a mortgagee clause, naming Nations Direct Mortgage as the loss payee. The insurance must be maintained throughout the duration of the loan."
- Flood insurance: "The flood insurance policy must contain a mortgagee clause, naming Nations Direct Mortgage as the loss payee."
GreenBox Loans — Non-QM / Multiple Programs
- "The loss payee clause must reflect GreenBox Loans as the additional insured."
Windsor Mortgage — Correspondent (Fannie Mae/Freddie Mac Overlay)
- At origination: "All such insurance policies are in full force and effect and contain a standard mortgagee clause naming Seller, its successors, and assigns as mortgagee, and all premiums thereon have been paid."
- Upon loan purchase/transfer: "Within 10 days of purchase, the Seller is required to send a notice to the insurance company advising of the change in the loss payee to Plains Commerce Bank."
- USDA-specific: "Policy/Binder must contain the lender's name, ISAOA/ATIMA, lender's address, and loan number."
Mega Capital Funding — HELOC Program
- Threshold-based rule: "The mortgagee clause is only required to show on homeowners and/or flood insurance policies when: the maximum line or loan amount is greater than or equal to $250,000, regardless of whether the current first lien holder escrows; OR the maximum line or loan amount is less than $250,000 and the first lien holder does not escrow. The mortgagee clause is not required to show on master insurance policies."
Documentation / Evidence Expectations
- FHA requires a copy of the insurance policy — showing coverage amount and name of loss payee — in the case binder.
- USDA loans (Windsor Mortgage overlay): policy/binder must reflect lender name, ISAOA/ATIMA, lender address, and loan number.
- Freddie Mac requires written cancellation notice of at least 10 days to the named mortgagee.
Conditions / Key Guardrails
- Mortgagee clause vs. loss payable clause: On Fannie Mae loans, a loss payable clause is explicitly prohibited as a substitute for a standard/union mortgagee clause.
- MERS loans: MERS must never be named as loss payee or mortgagee on any property insurance policy under both Fannie Mae and Freddie Mac guidelines.
- Servicing transfers: The outgoing seller is responsible for updating the loss payee/mortgagee designation on all insurance policies (hazard, flood, catastrophe) to reflect the new servicer.
- Lender-specific naming: Each lender requires its own exact name, address, and ISAOA/ATIMA language — confirm with the purchasing lender before closing.
