III.A.1.h. Insurance Coverage Administration (03/14/16)

Owned by Kacey Olson (Unlicensed)
Last updated: Nov 21, 2018
3 min read

© HUD Single Family Housing Policy Handbook 4000.1

Included in this section are:

i. Hazard Insurance
ii. Flood Insurance
iii. Hazard or Flood Insurance Proceeds
iv. Optional Policies

i. Hazard Insurance

Mortgagees may require the Borrower to have hazard insurance. If the Mortgagee requires the Borrower to purchase hazard insurance, the Mortgagee must:

  • be named as a “Loss Payee” on the hazard insurance policy; and
  • escrow sufficient funds for the payment of renewal premium.

(A) Payment of Renewal PremiumWhen the Mortgagee has required the Borrower to purchase hazard insurance, the Mortgagee must pay renewal premiums through one of the following methods:

  • remit the renewal premium when it is due;
  • if the Borrower is required to pay the premiums and fails to do so, escrow funds until there are sufficient funds for the payment of the renewal premium; or
  • advance the funds to pay the renewal premium.

(B) Fee for Change in Hazard Insurance PolicyThe Mortgagee may assess a reasonable and customary fee, up to the amount listed in Appendix 3.0, for processing the Borrower’s request to change hazard insurance coverage when the existing policy has not yet expired.

ii. Flood Insurance

For Properties located within a Special Flood Hazard Area (SFHA), the Mortgagee must ensure that insurance is in force for the life of the Mortgage or so long as such coverage remains available, unless the area in which the Property is located is no longer designated as an SFHA. If, due to rezoning, a Property securing an FHA-insured Mortgage becomes located in an SFHA, the Mortgagee must enforce HUD’s flood insurance requirements on coverage amounts and maintenance.

iii. Hazard or Flood Insurance Proceeds

(A) Insurance ClaimsThe 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 PropertyThe 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 without the written consent of the Borrower.

(C) Insurance Proceeds for Home Damage

(1) DefinitionA Viable Repair Plan is a plan for repairs of a mortgaged Property within the amounts available through insurance proceeds and borrower funds.

(2) StandardThe Mortgagee must expedite the release of insurance proceeds for needed home repairs after approving a Viable Repair Plan.

(D) Application of Insurance Proceeds to Unpaid Principal BalanceThe Mortgagee may only apply insurance proceeds payable for home damages to arrearages and/or reduction of the unpaid principal balance if:

  • 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.

iv. Optional Policies

(A) Personal Property and Personal Liability InsuranceThe Mortgagee may allow the Borrower to add Personal Property and personal liability insurance premiums to their monthly payments.

(B) Life or Disability or Optional Coverage Income PoliciesThe Mortgagee must clearly separate the collection of unpaid optional coverage premiums from the collection of any unpaid Mortgage Payment. If the payment does not include all or a part of an optional coverage premium, the Mortgagee may not treat the failure to pay as a failure to pay a part of the Mortgage Payment.