18.104.22.168 Insurance Proceeds
If a mortgage loan is current or fewer than thirty-one days’ delinquent, insurance proceeds requirements vary with the size of the proceeds. If the insurance proceeds are less than or equal to $20,000 the servicer must determine if, based on the type of repairs (e.g., damage affecting the safety, soundness, or structural integrity of the property), a licensed contractor is required to restore or repair the property and the servicer is authorized to release the insurance loss proceeds payable only to the borrower.
If the proceeds are greater than $20,000, but less than $40,000, the servicer must release the proceeds payable to both the borrower and the contractor—whether the contractor is licensed or not.
If the proceeds are equal to or greater than $40,000, the servicer must ensure that a licensed contractor is used to restore or repair the property and must release an initial disbursement of insurance loss proceeds up to the greater of $40,000 or 10% of the unpaid principal balance (UPB), and disburse any remaining funds in excess of the greater of $40,000 or 10% of the UPB based on periodic inspections of the progress of the repair work, and release all proceeds payable to both the borrower and the licensed contractor.166
If the mortgage loan is thirty-one or more days’ delinquent, then without regard to the amount of the loss proceeds, the servicer must ensure that a licensed contractor is used to restore or repair the property. Insurance loss proceeds must only be released payable to the borrower and the licensed contractor. If the proceeds are greater than $2500, the servicer must release an initial disbursement of insurance loss proceeds of 25% of the total insurance loss proceeds, but no more than $10,000, and must disburse the remaining funds in increments not to exceed 25% of the insurance loss proceeds following inspection of the repairs.167
166 Fannie Mae Single Family Servicing Guide B-5-01, Insured Loss Events.