Freddie Mac Single-Family Seller/Servicer Guide 2101.4 — Insurance coverage and requirements

This section contains: ■ Seller/Servicer insurance requirements ■ Fidelity insurance coverage ■ Mortgages errors and omissions (E&O) insurance coverage ■ Seller/Servicer insurance reporting requirements

(a) Seller/Servicer insurance requirements (i) Coverage requirements The Seller/Servicer must maintain in effect, at all times and at its expense: ■ A fidelity bond, and ■ A mortgagee’s E&O insurance policy The required limits and deductibles/retentions for each coverage are set forth in Sections 2101.4(b) and (c), respectively. If the Seller/Servicer uses a bond or policy that has been issued to its parent company, as permitted in Section 2101.4(a)(iii) below, the minimum limit of insurance must be based on the consolidated Base (as defined below in Section 2101.4(b)(iii)) amount for the parent and for all institutions related to the parent that are covered by the parent’s bond or policy, as applicable. Freddie Mac will accept bonds or policies that provide for an aggregate limit of insurance for a bond’s or policy’s term on the condition that the aggregate at least equals the minimum limit per loss or occurrence calculated in accordance with Section 2101.4(b) or 2101.4(c), as applicable. If the Seller/Servicer is also a Freddie Mac Multifamily Seller/Servicer and coverage required under this Guide and the Freddie Mac Multifamily Seller/Servicer Guide is provided under the same insurance contract, the higher minimum required coverage limit shall apply to the Seller/Servicer. If the Seller/Servicer maintains higher limits than required by this Guide, Freddie Mac requires and shall be entitled to the benefits of the higher limits maintained by the Seller/Servicer. Freddie Mac reserves the right to adjust the insurance requirements for any particular Seller/Servicer at Freddie Mac’s sole discretion. (ii) Acceptable insurer Coverage required under this section must be underwritten by an insurer that is rated A- (A-minus) or better by the A.M. Best Company. (iii)Parent institution’s coverage When the Seller/Servicer is a subsidiary of an institution with insurance that meets Freddie Mac’s requirements set forth in this Section 2101.4, Freddie Mac will accept the insurance of the Seller/Servicer’s parent as adequate for the Seller/Servicer if: ■ The Seller/Servicer is named as joint insured, and ■ Coverage under the parent’s policy or policies of insurance does not restrict or otherwise limit the Seller/Servicer’s ability to comply with all of Freddie Mac’s insurance requirements (iv) Other obligations of the Seller/Servicer The Seller/Servicer must maintain at its offices a complete and accurate copy of its required insurance bonds and policies for the current year and the past five years. Copies of these bonds and policies shall be provided to Freddie Mac upon request. The Seller/Servicer authorizes Freddie Mac to obtain copies of the bonds and policies and all related information from the Seller/Servicer’s insurer and/or agent or representative of the insurer. Freddie Mac’s requirements for Seller/Servicer insurance do not diminish, restrict or otherwise limit the Seller/Servicer’s responsibilities and obligations stated in the Purchase Documents. The Seller/Servicer must familiarize itself with the terms of the required insurance coverages and take all actions necessary to preserve the coverage and maximum benefits of such insurance for the Seller/Servicer and Freddie Mac, as applicable. In the event of bankruptcy where a stay is issued in relation to insurance coverage, the Seller/Servicer is required to cooperate with Freddie Mac and agree to any stipulation requested by Freddie Mac to lift the automatic stay in connection with Freddie Mac pursuing its rights and/or benefits under any of the bonds and policies required by this Guide. For any E&O policy provided on a “claims made” or “claims made and reported” basis, the Seller/Servicer must maintain continuous coverage dating back to the date on which the Seller/Servicer became subject to this Guide. In the event of termination or nonrenewal of an E&O policy issued on a “claims made” or “claims made and reported” basis, the Seller/Servicer shall either procure replacement coverage that provides for the same continuity required by this section or, if such continuity is not available in the marketplace, purchase an extended reporting period (sometimes referred to as tail coverage) on the terminated/non-renewed coverage for six years.

(b) Fidelity insurance coverage (i) Documentation Fidelity insurance coverage may be documented on a bond form acceptable to Freddie Mac or on the standard bond form currently mandated by or acceptable to the government agency that has regulatory or supervisory authority over the Seller/Servicer. If the Seller/Servicer is not regulated or supervised, Freddie Mac will accept coverage documented on the bond form commonly issued to institutions similar to the Seller/Servicer. The coverage may be provided in policy forms with names that include, but are not limited to, Fidelity Bond, Mortgage Bankers Bond, Financial Institution Bond, Financial Institution Crime Policy or Bankers Blanket Bond. Whichever policy form is relied upon to document the coverage required by Freddie Mac, the Seller/Servicer warrants that the terms of such coverage meet all of the requirements in this section. (ii) Scope Fidelity insurance coverage must protect the Seller/Servicer against loss resulting from dishonesty, theft and/or fraud committed by any of the following persons (referred to as “Designated Agents”), whether acting alone or in collusion with others: ■ Any officer or employee of the Seller/Servicer ■ Any employee of an outside firm while they are providing legal, data processing or other accounting services for the Seller/Servicer ■ Any person assigned to the Seller/Servicer through an intervening employer or agency to perform the usual duties of an employee of the Seller/Servicer on a contingent or temporary basis, and ■ Any intern of the Seller/Servicer Fidelity insurance must also include the following provisions for the benefit of Freddie Mac, as holder of an insurable interest in the Mortgages and/or REO originated, sold and/or serviced by the Seller/Servicer: ■ Freddie Mac is protected against any loss it incurs in connection with dishonesty, theft and/or fraud committed by any partner, sole proprietor or major shareholder of the Seller/Servicer, whether acting alone or in collusion with others and without any limitation as to improper personal gain ■ Freddie Mac is named as a sole loss payee on payment drafts the insurer issues for losses that Freddie Mac incurs in connection with acts covered by the insurance ■ Freddie Mac has the right to file a claim directly with the insurer if the Seller/Servicer fails to file a claim for a covered loss incurred by Freddie Mac when reasonably available ■ Bankruptcy or insolvency of the insured or of the insured’s estate will not relieve the insurer of any of its obligations under the bond (iii)Limits and deductibles/retentions required The minimum acceptable limits per fidelity loss or occurrence are listed in the following table. The maximum amount of fidelity bond coverage required is $150 million. Minimum limits per fidelity loss or occurrence Base* Minimum required insurance limit Maximum deductible clause based on face value of policy $100 million or less $300,000 Higher of 10% or $100,000 Over $100 million up to $1 billion + 0.150% of the next $400 million + 0.125% of the next $500 million Over $1 billion + 0.100% of any amount over $1 billion 15% Note: The deductible cannot exceed 1% of the Seller/Servicer’s total net worth. *Base = The highest of total annual Home Mortgage and Multifamily Mortgage origination, sale or Servicing volume, including Home Mortgages and Multifamily Mortgages held in portfolio. The Seller/Servicer must include in its Base the UPB of all Mortgages for which it holds the related Servicing Contract Right, regardless of whether a Servicing Agent has been engaged to perform subservicing on behalf of the Seller/Servicer. A Servicing Agent must only include in its Base the UPB of Mortgages for which it holds the related Servicing Contract Right and need not include the UPB of Mortgages for which the Servicing Agent has been engaged to perform subservicing on behalf of another Seller/Servicer.

(c) Mortgagee’s E&O insurance coverage (i) Documentation Mortgagee’s E&O insurance coverage must be documented on policy forms commonly issued to institutions similar to the Seller/Servicer. The coverage may be provided in policy forms with names that include, but are not limited to, Mortgage Bankers Bond, Mortgage Errors & Omissions, Mortgage Impairment, Mortgagee Interest, Mortgage Holders Liability, Professional Liability or Mortgage Protection. Whichever policy form is relied upon to document the coverage required by Freddie Mac, the Seller/Servicer warrants that the terms of such coverage meet all of the requirements in this section. (ii) Scope The coverage must protect the Seller/Servicer against loss resulting from negligence, errors or omissions committed by the Seller/Servicer or any Designated Agent (as defined in Section 2101.4(b)(ii)) while performing, at a minimum, the following duties with respect to Mortgages originated and/or sold by the Seller and/or Mortgages or REO serviced by the Servicer: ■ Determining whether the Mortgaged Premises are located in Special Flood Hazard Areas ■ Ensuring that the Mortgaged Premises are insured in accordance with Chapter 4703 ■ Maintaining, where applicable, FHA insurance, VA guaranty, RHS guaranty or mortgage insurance on the Mortgages ■ Complying with applicable reporting requirements of the FHA, VA, RHS or MI, and ■ Ensuring the payment of property taxes and any other mandatory assessments on the Mortgaged Premises or REO E&O insurance coverage must also include the following provisions for the benefit of Freddie Mac, as holder of an insurable interest in the Mortgages and/or REO originated, sold and/or serviced by the Seller/Servicer: ■ Freddie Mac is named as a loss payee on payment drafts the insurer issues for losses that Freddie Mac incurs in connection with acts covered by the insurance ■ Freddie Mac has the right to file a claim directly with the insurer if the Seller/Servicer fails to file a claim for a covered loss incurred by Freddie Mac when reasonably available ■ Bankruptcy or insolvency of the insured or of the insured’s estate will not relieve the insurer of any of its obligations under the policy (iii)Limits and deductibles E&O coverage must equal the amount of the Seller/Servicer’s fidelity bond coverage. However, Freddie Mac does not require E&O coverage in excess of: ■ $10 million if the Base consists only of Home Mortgages ■ $30 million if the Base consists of Home Mortgages and Multifamily Mortgages Freddie Mac will accept E&O policies providing coverage per Mortgage if the insurance limit per Mortgage is no less than the UPB of the largest Mortgage originated and/or sold by the Seller/Servicer, whichever is highest, provided that Seller/Servicer must review the balances of the Mortgages before each premium renewal date to determine whether the above limitation needs to be increased as the result of the origination of higher balance Mortgages during the last coverage period. For policies that provide coverage per Mortgage the maximum deductible amount for each Mortgage cannot be more than 5% of the insurer’s liability per Mortgage. For policies that provide coverage per aggregate loss, the deductible is determined in accordance with the following table: Determining the deductible Base* Maximum deductible Less than $1 billion The greater of $100,000 or 10% of the face amount of the policy Equal to or greater than $1 billion 15% of the face amount of the policy * Base = The highest of total annual Home Mortgage and Multifamily Mortgage origination, sale or Servicing volume, including Home Mortgages and Multifamily Mortgages held in portfolio. The Seller/Servicer must include in its Base the UPB of all Mortgages for which it holds the related Servicing Contract Right, regardless of whether a Servicing Agent has been engaged to perform subservicing on behalf of the Seller/Servicer. A Servicing Agent must only include in its Base the UPB of Mortgages for which it holds the related Servicing Contract Right and need not include the UPB of Mortgages for which the Servicing Agent has been engaged to perform subservicing on behalf of another Seller/Servicer.

(d) Seller/Servicer insurance reporting requirements (i) Reporting of insurance documentation Within 30 days of obtaining or renewing any required bond or policy, the Seller/Servicer must submit to Freddie Mac (see Directory 1) a certificate of insurance and related documentation showing the following information: ■ Name and address of insurer and insurance broker ■ Bond or policy number ■ The Seller/Servicer as named insured or joint named insured ■ Type of insurance and coverage; limit of liability on a per loss, occurrence or Mortgage, or claims-made basis (specify) and/or any applicable aggregate limit of coverage; and effective dates of coverage ■ Deductible or retention amounts ■ Any endorsement or optional coverage modifying the original bond or policy if the endorsement or optional coverage reinforces compliance with Freddie Mac’s requirements or effectively reduces the coverage required by Freddie Mac. Reference to a form number is not acceptable. A copy of the endorsement or optional coverage is required if the endorsement or optional coverage cannot be summarized substantively on the certificate. ■ The insurer’s agreement to notify Freddie Mac (see Directory 1): ❑ At least 30 calendar days before the insurer, on its own initiative, cancels or nonrenews the Seller/Servicer’s coverage for any reason ❑ Within 10 Business Days after the insurer, on its own initiative, reduces or restrictively modifies the Seller/Servicer’s coverage for any reason or, at the Seller/Servicer’s request, cancels or non-renews the Seller/Servicer’s coverage (ii) Reporting of loss or change in coverage The Seller/Servicer must report to Freddie Mac the following events within 10 Business Days of their occurrence using the Change and Activity Report, submitted in accordance with Section 2101.5(a): ■ The determination that any single act covered under the required bonds and policies has caused loss exceeding $100,000, whether or not Freddie Mac’s interests are affected or a claim is filed with the insurer, or ■ The receipt of notice from any insurer that such insurer has taken or intends to take action to cancel, reduce, not renew or restrictively modify any required Seller/Servicer insurance coverage for any reason. The Seller/Servicer must include a copy of the insurer’s notice and detail the reasons for the insurer’s action or intended action if not stated in the insurer’s notice. The Seller/Servicer must also report its effort to obtain replacement coverage or otherwise satisfy Freddie Mac’s insurance requirements.