Hazard Insurance General Specifications

Overview

A hazard insurance policy that meets the following specifications must be provided by the applicant at closing:

  • For purchase transactions, evidence that the first year premium has been paid.
  • For refinance loans, PennyMac accepts a current policy as long as on the date of closing, there are 60 days remaining before the policy expires. If, on the date of closing there are less than 60 days to policy expiration, PennyMac requires a 30 day binder or evidence that the policy has been renewed for one year.

*The above policy applies to all insurance policies, including project master insurance.

PennyMac relies on the Correspondent’s representations and warranties that, as of the date a mortgage loan is purchased, hazard insurance has been obtained and the premium for such insurance is paid.

The applicant has the right to select the insurance carrier provided the carrier has at least one of the following ratings at the time the mortgage loan was closed:

  • “B” or better general policyholder’s rating, or a “3” or better financial performance index rating from A.M. Best’s Insurance Reports.
  • “A” or better rating in Demotech Inc.’s Hazard Insurance Financial Stability Ratings, or
  • “BBBq” qualified solvency ratio, or “BBB” or better claims-paying ability rating in Standard and Poor’s Ratings Group Insurer Solvency Review.

Prior to closing, the Correspondent must verify that the hazard insurance rating specifications have been met. The following alternative hazard insurance coverages are also acceptable:

  • In the event that the issuer of the hazard insurance policy does not meet the above described rating specifications, the hazard insurance policy may, never-the-less, be acceptable if the insurer is reinsured by a company that meets either one of the A. M. Best general policy-holder ratings or Standard and Poor’s Ratings Group claim-paying ability ratings described above.
  • Both insurance companies must execute an Assumption of Liability Agreement (Fannie Mae Form 858) that provides for 100% reinsurance of the primary insurer’s policy and 90-day written notice of termination of the reinsurance arrangement.  The Assumption of Liability Agreement must be attached to the hazard insurance policy.

Coverage from Lloyd’s of London is acceptable.

If no other coverage is available, a Fair Access to Insurance Specifications (FAIR) plan or other state-managed insurance pool is acceptable.

The insurance carrier and, if applicable, the reinsuring insurer must be authorized (or licensed, if required) to transact business in the state in which the mortgaged property is located.