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12.2.2.8 Distribution of Insurance Proceeds After Disaster

Fannie Mae’s rules for the distribution of insurance proceeds after a disaster are outlined at section B-5-01 of the Servicing Guide.128 Fannie Mae occasionally makes temporary revisions to its requirements to assist borrowers who need upfront insurance proceeds to repair or rebuild their homes. What follows are the generally applicable requirements for disbursing loss proceeds after a natural disaster.

For borrowers who were current or fewer than thirty-one days delinquent at the time of the loss, and where the insurance loss proceeds are less than or equal to $40,000, servicers may disburse the proceeds in one payment. For borrowers who were current or fewer than thirty-one days delinquent at the time of the loss, and where the insurance loss proceeds are greater than $40,000, servicers may disburse proceeds up to the greater of $40,000, 33% of the proceeds, or the amount by which the release funds exceed the sum of the unpaid principal balance (UPB), accrued interest, and advances on the loan. Remaining funds must be disbursed based on periodic inspections of the progress of the repair work.

For borrowers who were thirty-one days or more delinquent, and where the insurance loss proceeds are less than or equal to $5000, servicers may disburse the proceeds in one payment. For borrowers who were thirty-one days or more delinquent, and where the insurance loss proceeds are greater than $5,000, servicers 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.129

Footnotes

  • 128 Fannie Mae, Single-Family Servicing Guide, B-5-01, Insured Losses.

  • 129 Fannie Mae, Single-Family Servicing Guide, B-5-01, Insured Losses.