FHA Single Family Housing Policy Handbook 4000.1, III. SERVICING AND LOSS MITIGATION > B. Title II Insured Housing Programs Reverse Mortgages > 1. Servicing of FHA-Insured HECMs — m. Insurance Coverage Administration

m. Insurance Coverage Administration (04/29/2024)

i. Hazard Insurance (A) Standard The Borrower is required to have, and maintain for the life of the HECM, Hazard Insurance, but may at any time instruct the Mortgagee to purchase and make payments for this insurance from available Principal Limit, when such funds are available. HUD and the Mortgagee may determine hazards which must be insured against. The Mortgagee must purchase and make payments for Hazard Insurance where the Borrower has required the Mortgagee to do so. 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; and • set aside sufficient funds for the payment of the renewal premium. If the Borrower chooses to be responsible for obtaining Hazard Insurance, the Mortgagee must obtain from the Borrower a copy of the insurance policy and evidence that the policy is renewed upon expiration. If the Borrower does not provide evidence that the policy has been renewed, the Mortgagee must proceed with the steps outlined in Lender-Placed Insurance. (B) Required Documentation The Mortgagee must retain in the Servicing File an annually issued certificate of insurance that is sufficiently detailed or a complete copy of the insurance policy to establish that the insurance meets the standard.

ii. Insurance on Units in a Condominium Unit (A) Hazard (1) Standard The Mortgagee must verify that the Property is insured in the amount required under the Hazard Insurance section if the Condominium Association does not maintain Hazard Insurance in accordance with such requirements. (2) Required Documentation The Mortgagee must retain in the Servicing File a certificate of insurance that is sufficiently detailed or a complete copy of the insurance policy to establish that the insurance meets the standard. (B) Walls-In (HO-6) (1) Standard The Mortgagee must verify that the Borrower has obtained a Walls-In coverage policy (HO-6) if the master or blanket policy does not include interior unit coverage, including replacement of interior improvements and betterment coverage, to insure improvements that the Borrower may have made to the unit. The total coverage of both policies must equal 100 percent of the required Hazard Insurance amount. (2) Required Documentation The Mortgagee must retain in the Servicing File an annually issued certificate of insurance that is sufficiently detailed or a complete copy of the insurance policy to establish that the insurance meets the standard.

iii. Payment of Renewal Premium (A) Standard When the Borrower has required the Mortgagee to purchase Hazard Insurance, the Mortgagee must pay the renewal premium when it is due. If the Borrower is required to pay the premium and fails to do so, the Mortgagee must: • advance funds from the line of credit; or • change the payment plan, if needed, and advance the funds. (B) Required Documentation Where the Borrower has required the Mortgagee to purchase Hazard Insurance or the Mortgagee advanced the funds because the Borrower failed to pay the renewal premium, the loan history must reflect each transaction as it is disbursed. In addition, the Mortgagee must retain in its Servicing File copies of: • the premium renewal notice; • the check payable to the insurance company; and • any required payment plan change. Where the Borrower pays the renewal premium, the Mortgagee must obtain a copy of the declaration page of the policy with evidence of the new expiration date, or other documentation from the hazard insurance provider that contains: • name of the insured; • address of insured Property; • type of coverage; • insurance policy number; • insurance policy limits; • effective date of the insurance policy; • expiration date of the insurance policy; • name and contact information for the insurer; and • annual insurance premium.

iv. 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.

v. Flood Insurance (A) Standard For Properties located within a Special Flood Hazard Area (SFHA), the Mortgagee must ensure that Flood Insurance is maintained for the life of the HECM. Flood Insurance must be an amount at least equal to the lesser of: • 100 percent of the replacement cost of the insurable value of property improvements, which consists of the development or project cost less the estimated land cost at the time of closing; • the maximum amount of the National Flood Insurance Program (NFIP) insurance available with respect to the particular type of property; or • the outstanding principal balance of the HECM. Where the outstanding principal balance of the HECM is used to determine the amount of Flood Insurance coverage, the Flood Insurance must be adjusted each renewal cycle to cover an amount at least equal to the outstanding principal balance at the end of the insurance coverage period. If remapping causes a Property securing a HECM to become located in an SFHA, the Mortgagee must enforce HUD’s flood insurance requirements on coverage amounts and maintenance. (B) Required Documentation The Mortgagee must retain in the Servicing File an annually issued certificate of insurance that is sufficiently detailed or a complete copy of the insurance policy to establish that the insurance meets the standard.

vi. Lender-Placed Insurance (A) Definition Lender-Placed Insurance refers to Hazard and/or Flood Insurance purchased by the Mortgagee when the Borrower fails to renew the applicable required policy. Reasonable Rate refers to a rate that does not exceed the rate or advisory rate set by the principal state-licensed rating organization for essential property insurance in the voluntary market or, if coverage is available under a Fair Access to Insurance Requirements (FAIR) Plan, the FAIR Plan rate. For states without a principal state- licensed rating organization or FAIR Plan, the Mortgagee must provide to FHA information concerning the lowest rates available from an insurer for the types of coverage involved, with a request for a determination of whether the rate is reasonable. FHA will determine a rate is reasonable if it is the lowest rate available from an insurer for the types of coverage involved that approximates the rate assessed for comparable insurance coverage applicable to similarly situated properties in a state that offers a FAIR Plan or maintains a state-licensed rating organization. (B) Standard If the Borrower fails to renew or provide evidence of acceptable property insurance coverage when required, the Mortgagee must purchase a lender-placed Hazard and/or Flood Insurance where Flood Insurance is required. The Mortgagee may, at its discretion, obtain more coverage than is necessary to protect the Mortgagee’s interest. All insurance policies must be obtained at a reasonable rate.

vii. 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, such as a property charge advance, without the written consent of the Borrower. (C) Insurance Proceeds for Home Damage (1) Definition A Viable Repair Plan refers to 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 ensuring sufficient funds are available and approving a Viable Repair Plan. (D) Application of Insurance Proceeds to Unpaid Principal Balance The Mortgagee must not apply insurance proceeds payable for home damages to arrearages and/or reduction of the unpaid principal balance unless: • 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. If the Mortgagee receives repayment from insurance or condemnation proceeds after restoration or repair of the damaged Property, then the available Principal Limit and HECM balance must be reduced by the amount of such proceeds.