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h. Insurance Coverage Administration (10/01/2025)
i. Hazard Insurance
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.
(A) Payment of Renewal Premium
When the Mortgagee has required the Borrower to purchase Hazard Insurance, the Mortgagee must escrow for premium payments and pay renewal premiums by:
• remitting the renewal premium from available escrow funds; or
• where insufficient escrow funds exist, advancing corporate funds for the payment of the renewal premium.
The Mortgagee must not require more coverage than is necessary to protect its investment. The Mortgagee must escrow renewal premiums for the entire amount if the Borrower chooses to insure the Property for more than the minimum amount.
(B) Fee for Change in Hazard Insurance Policy
The Mortgagee may assess a reasonable and customary fee, up to the amount listed in Appendix 3.0 – Post-endorsement Fees and Charges by Location, for processing the Borrower’s request to change hazard insurance coverage when the existing policy has not yet expired.
ii. Flood Insurance
(A) Standard
The Mortgagee must review all Properties annually to determine if the Property is located within a Special Flood Hazard Area (SFHA).
For Properties located within an SFHA that are required to carry Flood Insurance, the Mortgagee must:
• ensure that Flood Insurance is in force for the life of the Mortgage; and
• review annually that the Property carries sufficient Flood Insurance.
(B) Required Documentation
The Mortgagee must include updated Flood Insurance information for Properties where Flood Insurance is required in the Servicing and Claims File.
Page 1187
III. SERVICING AND LOSS MITIGATION A. Title II Insured Housing Programs Forward Mortgages
1. Servicing of FHA-Insured Mortgages
iii. Hazard or Flood Insurance Proceeds
(A) Insurance Claims
The Mortgagee must take necessary steps to ensure that hazard or flood insurance claims are filed and settled as expeditiously as possible.
(B) Loss Settlement Amounts for Borrower Expenses and Personal Property
The Mortgagee must promptly release to the Borrower all insurance settlement proceeds received for coverage of a Borrower’s Personal Property, temporary housing, and other transition expenses. The Mortgagee may not withhold Disbursement of such proceeds to cover an existing arrearage without the written consent of the Borrower.
(C) Insurance Proceeds for Home Damage
(1) Definition
A Viable Repair Plan is a plan for repairs of a mortgaged Property within the amounts available through insurance proceeds and borrower funds.
(2) Standard
The Mortgagee must expedite the release of insurance proceeds for needed home repairs after approving a Viable Repair Plan.
(D) Application of Insurance Proceeds to Unpaid Principal Balance
The Mortgagee may only apply insurance proceeds payable for home damages to arrearages and/or reduction of the unpaid principal balance if:
• the amount of the proceeds exceeds the costs to repair the damages to the home; or
• the insurance proceeds are insufficient to repair the home damages based on a certified repair estimate, and the Borrower is unable to demonstrate that they have additional funds from other sources to complete the repairs.
iv. Optional Policies
(A) Personal Property and Personal Liability Insurance
The Mortgagee may allow the Borrower to add Personal Property and personal liability insurance premiums to their monthly payments.
(B) Life or Disability or Optional Coverage Income Policies
The Mortgagee must clearly separate the collection of unpaid optional coverage premiums from the collection of any unpaid Mortgage Payment. If the payment does
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III. SERVICING AND LOSS MITIGATION A. Title II Insured Housing Programs Forward Mortgages
1. Servicing of FHA-Insured Mortgages
not include all or a part of an optional coverage premium, the Mortgagee may not treat the failure to pay as a failure to pay a part of the Mortgage Payment.