What are Fannie Mae's insurance requirements for apartment building loans?

Fannie Mae's Multifamily Selling and Servicing Guide (Chapter 11) sets detailed insurance requirements for all Delegated Underwriting and Servicing (DUS) loans. Property insurance must be written on a replacement cost basis with no coinsurance provision, or with an agreed amount endorsement that waives coinsurance. The policy must cover all insurable improvements at 100% of replacement cost, and the insurer must carry an A.M. Best rating of at least A- (Size Category VI or higher) or be an approved surplus lines carrier.

General liability coverage must carry minimum limits of $1,000,000 per occurrence and $2,000,000 general aggregate. Flood insurance is required if any portion of the improvements is in a Special Flood Hazard Area as mapped by FEMA, and the coverage must be at least equal to the lesser of the outstanding loan balance or the maximum available under the NFIP (with private or excess flood required to fill any gap). Loss of rents coverage must equal at least 12 months of projected gross rental income.

Fannie Mae also requires ordinance or law coverage at a minimum of 10% of the property coverage amount, boiler and machinery (equipment breakdown) coverage, and a mortgagee clause naming the lender. Wind and named-storm deductibles are capped at 5% of the total insured value per the Servicing Guide. Failing to maintain compliant coverage triggers a loan default and potential force-placed insurance at the borrower's expense.