Freddie Mac Single-Family Seller/Servicer Guide §2101.6 — Seller/Servicer insurance requirements (08/10/22)
Freddie Mac Guide §2101.6 (Seller/Servicer insurance requirements). Gap-fill (verbatim, ID-diff).
Verbatim regulatory text
Verbatim provisions from Freddie Mac Single-Family Seller/Servicer Guide §2101.6 — Seller/Servicer insurance requirements (08/10/22) — each quote is a verified substring of the regulator-published source snapshot, not retyped. Quoted for reference; this is not legal advice. The operational layer (P&P updates, prompts) lives in the regulation update kits.
Freddie Mac Guide 2101.6
(08/10/22) (a) Coverage levels (i) Limits of insurance The Seller/Servicer must maintain in effect, at all times and at its expense, a fidelity bond and a mortgagee’s errors and omissions (E&O) insurance policy. If the Seller/Servicer uses its parent’s bond or policy, as permitted in Section 2101.6, the minimum limit of insurance must be based on the consolidated base 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 provided that the aggregate at least equals the minimum limit per loss or occurrence calculated in accordance with this Section 2101.6.
Freddie Mac Guide 2101.6
101-11 For fidelity bond and E&O insurance, the higher minimum Freddie Mac Multifamily coverage limit applies if: ■ The Seller/Servicer is also a Freddie Mac Multifamily Seller/Servicer ■ The required fidelity or mortgagee’s E&O coverage is provided under the same insurance contract that covers both Home Mortgages and Multifamily Mortgages and ■ The Freddie Mac Multifamily
Freddie Mac Guide 2101.6
requires a higher limit of fidelity or mortgagee’s E&O coverage (A) Limits of fidelity bond The minimum acceptable limits per fidelity loss or occurrence are as follows: Base* Minimum required insurance limit $100 million or less $300,000 $500 million or less $300,000 +0.15% of base over $100 million $1 billion or less $300,000 +0.15% of $400 million (i.e., $600,000) +0.125% of base over $500 million Over $1 billion $300,000 +0.15% of $400 million (i.e., $600,000) +0.125% of $500 million (i.e., $625,000) +0.1% of base over $1 billion * 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. (B) Limits of E&O insurance Mortgagee’s E&O coverage must be maintained at a minimum limit equal to the higher of (i) $300,000 or (ii) 20% of the fidelity coverage required in the table above. If the base consists of Home Mortgages only, the limit of mortgagee’s E&O insurance may be capped at $10 million. For mortgagee’s E&O insurance, Freddie Mac will accept policies providing coverage per Mortgage if the insurance limit per Mortgage is no less than the UPB of
Freddie Mac Guide 2101.6
101-12 the largest Mortgage originated and/or sold by the Seller or serviced by the Servicer, whichever is highest. For mortgagee’s E&O insurance, Freddie Mac will accept a policy that provides lower limits of insurance for losses other than those caused by lack or insufficiency of property insurance on Mortgaged Premises, if any such lower limit of insurance is the maximum liability that the insurer will assume for similar losses by institutions similar to the Seller/Servicer. Examples of calculations of the required minimum insurance limits are as follows: Base Calculation Minimum required insurance limit for fidelity bond $90 million not applicable $300,000* $400 million $300,000 +0.15% of $300 million $750,000 $750,000* $750 million $300,000 +0.15% of $400 million +0.125% of $250 million $1,212,500 $1,212,500* $1.5 billion $300,000 +0.15% of $400 million +0.125% of $500 million +0.1% of $500 million $2,025,000 $2,025,000** * $300,000 in mortgagee’s E&O coverage (the higher of $300,000 or 20% of the required fidelity coverage) ** $405,000 in mortgagee’s E&O coverage (the higher of $300,000 or 20% of the required fidelity coverage) (ii) Deductibles The maximum deductible allowed for any one fidelity loss is the higher of: ■ 5% of the minimum limit of fidelity insurance required by Freddie Mac, or ■ $100,000 The maximum deductible allowed for any one mortgagee’s E&O loss is the higher of:
Freddie Mac Guide 2101.6
101-13 ■ 5% of the minimum limit of mortgagee’s E&O insurance required by Freddie Mac, or ■ $100,000 The deductible may not be calculated based on the actual limit of insurance in force. For example, Freddie Mac requires a Servicer to maintain at least $5 million in fidelity insurance. The Servicer actually maintains $7 million in fidelity insurance. The maximum deductible allowed is 5% of $5 million or $250.000. (b) Acceptable insurer Freddie Mac will accept coverage underwritten by an insurer that is rated A- (A-minus) or better by the A.M. Best Company. (c) Parent institution’s coverage When the Seller/Servicer is a subsidiary of an institution with fidelity and/or mortgagee’s E&O insurance that meets Freddie Mac’s requirements, 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 (d) Other obligations of the Seller/Servicer The Seller/Servicer must maintain at its offices a complete and accurate copy of its fidelity bonds and mortgagee’s E&O 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 fidelity and mortgagee’s E&O 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 fidelity and mortgagee’s E&O 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.
Freddie Mac Guide 2101.6
Seller/Servicer insurance requirements (Future effective date 06/08/26) (a) Coverage requirements The Seller/Servicer must maintain in effect, at all times and at its expense (i) a fidelity bond and (ii) a mortgagee’s errors and omissions (E&O) insurance policy. The required limits and deductibles/retentions for each coverage are set forth in Sections 2101.7 and 2101.8, respectively. If the Seller/Servicer uses a bond or policy that has been issued to its parent company, as permitted in Section 2101.6(c), the minimum limit of insurance must be based on the consolidated Base (as defined in Section 2101.7(c)) 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 this Section 2101.7 or 2101.8, 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
Freddie Mac Guide 2101.6
is provided under the same insurance contract, the higher minimum required coverage limit shall apply to the Seller/Servicer. If the Seller/Servicer maintains broader coverage and/or higher limits than required by this Guide, Freddie Mac requires and shall be entitled to the benefits of the broader coverage and/or 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. (b) 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. (c) 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 Sections 2101.6 through 2101.9, 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
Freddie Mac Guide 2101.6
101-15 ■ 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 (d) 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 non-renewal 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.