Fannie Mae Single Family 2009 Selling Guide

Fannie Mae Single Family 2009 Selling Guide, Part B, Origination Through Closing

Sub-part B7, Insurance, Chapter B7-4, Additional Project Insurance

A management company that handles funds for the homeowners' association (or co-op corporation) should be covered for its own fidelity insurance policy, which must provide the same coverage required of the homeowners' association (or co-op corporation).

Amount of Coverage

The policy must cover the maximum funds that are in the custody of the homeowners' association (or co-op corporation) or its management agent at any time while the policy is in force.

A lesser amount of coverage is acceptable if the projects legal documents require the homeowners' association (or co-op corporation) and any management company to adhere to one or more of the following financial controls:

Separate bank accounts are maintained for the working account and the reserve account, each with appropriate access controls, and the bank in which funds are deposited sends copies of the monthly bank statements directly to the homeowners' association (or co-op corporation).
The management company maintains separate records and bank accounts for each homeowners' association (or co-op corporation) that uses it's services, and the management company does not have the authority to draw checks on, or transfer funds from, the homeowners' association (or co-op corporation) reserve account.
Two members of the Board of Directors must sign any checks written on the reserve account.

Even then, the fidelity insurance coverage must equal at least the sum of three months of assessments on all units in the project.

Cancellation/Modification Requirements

The policy of the condo project must include a provision that calls for ten days' written notice to the homeowners association (or insurance trustee) before the policy can be canceled or substantially modified for any reason. The same notice must be given to each servicer that services a Fannie Mae owned or Fannie Mae securitized mortgage in the condo project.