KEY TOPICS IN THIS CHAPTER

 Types of Insurance 

 Acceptable Coverage 

 Authorized Providers 

HB-1-3565 

9.1 INTRODUCTION 

Insurance protects the GRRHP loan against 

loss or damage. Lenders must review the borrower’s 

insurance policies to confirm that the coverage is 

adequate to protect against financial loss due to 

property damage, employee dishonesty or error, and 

personal injuries that occur on the property. Lenders 

intending to sell GRRHP loans in the secondary market must require insurance coverage 

consistent with the standards of Fannie Mae, Freddie Mac, or Ginnie Mae. 

Lenders must continue to monitor the insurance policies over the term of the loan 

so that each GRRHP property is continuously insured with acceptable property and 

liability insurance policies. The named insured must be the borrower. Insurance policies 

must also include the lender in a loss payee/mortgagee clause. 

The following section identifies the types of insurance and the specific provisions 

that must be included in the policy. 

SECTION 1: OVERVIEW OF INSURANCE REQUIREMENTS 

9.2 OVERVIEW 

Described throughout this chapter are the different types of Agency 

insurance requirements for the GRRHP program. At a minimum, lenders must 

establish insurance standards for GRRHP loans that meet or exceed the insurance 

requirements of Fannie Mae, Freddie Mac, or Ginnie Mae. Failure to ensure that 

proper insurance is maintained on the property may result in denial of the guarantee 

payment by the Agency. 

SECTION 2: TYPES OF INSURANCE

9.3 PROPERTY INSURANCE 

Property insurance protects the physical asset against loss due to damage. 

Property insurance includes: 

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CHAPTER 9: INSURANCE REQUIREMENTS 
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 Hazard Insurance to protect the property against fire and weather-related 

damage, as well as damage from civil commotion, aircraft, or other vehicles. 

The policy must be endorsed to include all the extended coverage perils. An 

“all risks” policy is recommended. 

 Flood Insurance to protect the property against losses caused by flooding due 

to natural disasters such as hurricanes. Flood insurance through NFIP is 

required for all properties located in a Special Flood Hazard Area (“SFHA”) 

as identified by FEMA. For every GRRHP loan, the lender must complete 

FEMA Form 81-93, Standard Flood Hazard Determination, and must 

determine whether any of the improvements on a property are or will be 

located in a SFHA. See Chapter 11, Paragraph 11.7 A. for additional 

requirements. 

 Builder’s Risk Insurance to protect the property against loss or damage 

during construction or reconstruction after an insured loss. Builder’s risk 

insurance is required during all periods of construction, reconstruction and 

rehabilitation. 

 Boiler and Machinery Coverage may be required for any property that 

operates steam boilers, turbines, engines, or other pressure vessels to cover the 

cost of boiler replacement and other machinery in the event of an accident. 

 Sinkhole or Earthquake Insurance is required in areas where there is a risk 

of damage from this form of natural disaster. 

 Business Income Insurance is required to cover the loss of income to a 

property resulting from an event that makes one or more units temporarily 

uninhabitable. 

9.4 FIDELITY INSURANCE 

Fidelity insurance protects the property against loss due to employee dishonesty. 

The policy must provide coverage on all persons with control over or access to project 

income or other assets. Fidelity coverage may also be known as Blanket Crime Coverage 

or Fidelity Bonding. Property managers must provide the lender with evidence of fidelity 

insurance. 

9.5 MORTGAGEE’S ERRORS AND OMISSIONS (E&O) INSURANCE

E&O coverage protects the borrower against loss resulting from negligence, 

errors, or omissions committed by those persons covered under the borrower’s fidelity 

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insurance policy. Obtaining E&O insurance does not diminish or limit the borrower’s 

documentary obligations and responsibilities. 

9.6 LIABILITY INSURANCE 

This coverage insures against any personal injury that might occur in or on the 

property’s common areas, common elements, commercial space, and public areas. 

9.7 WORKER’S COMPENSATION 

This insurance coverage, also known as employer’s liability coverage, provides 

for replacement of lost wages to workers that suffer job injuries. This coverage is not 

required by the Agency but may be required by State or local law. 

9.8 EVIDENCE OF INSURANCE, TERMS, AND COVERAGE 

The lender must obtain the original policy or the declaration page and evidence 

that the first full year’s premium has been paid for all required insurance coverage. 

Either originals or certified copies of current insurance policies and receipts for 

subsequent annual premiums must be kept on file by the lender. The term of the 

insurance policy may not be less than one year. All policies must be on an occurrence 

basis. The lender must determine an acceptable level of coverage based on the needs of 

the property. 

SECTION 3: AUTHORIZED INSURANCE PROVIDERS 

9.9 OVERVIEW 

Borrowers are responsible for selecting an insurance provider that is reputable and 

financially sound. The lender must review all relevant available information about 

insurers including financial statements, insurance rating reports from Best’s Insurance 

Reports or another suitable rating firm, and information from State insurance authorities. 

The borrower is required to disclose any identity of interest relationships with the 

insurer company or must certify to the lender that none exists.

9.10 ACCEPTABLE RATINGS FOR INSURANCE PROVIDERS 

A hazard or property insurance provider needs to meet one of the acceptable 

rating categories established by one of the rating agencies approved by Fannie Mae, 

Freddie Mac, or Ginnie Mae. 

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