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12.2.3.8 Disbursement of Insurance Proceeds After Disaster

Freddie Mac’s rules for the distribution of insurance proceeds after a disaster are outlined at section 8202.11 of the Seller/Servicer Guide (Insurance loss settlements).174 Freddie Mac 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, servicers may disburse proceeds up to the greater of $40,000, 33% of the insurance 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 may be distributed based on the repair plan reviewed and approved by the servicer. An inspection is required before any remaining funds are disbursed. The servicer may issue insurance proceeds via check payable only to the borrower. The servicer may use either physical/on-site inspections or remote inspections to confirm the progress or completion of repairs. A final inspection is not required.175

For borrowers who were thirty-one or more days delinquent at the time of the loss, and where the proceeds are less than or equal to $5000, the servicer may disburse the funds in one payment. But if the proceeds are over $5001, the servicer may make an initial disbursement of 25% of the insurance proceeds up to the greater of $10,000 or the amount by which the release funds exceed the sum of the UPB, accrued interest, and advance on the loan. Remaining funds may be distributed in increments not to exceed 25% of the proceeds. The servicer may issue insurance proceeds via check payable only to the borrower. Note that, for this category of borrowers, remote inspections are not permitted, and a final inspection is always required to ensure that all repairs are completed.176

Footnotes

  • 174 “If the Mortgaged Premises has been damaged and is located in an Eligible Disaster Area, property insurance proceeds for structural losses must be disbursed in accordance with Section 8202.11.” Freddie Mac, Single-Family Seller/Servicer Guide, § 8404.3, Insurance loss settlements after an Eligible Disaster.

  • 175 Freddie Mac, Single-Family Seller/Servicer Guide, § 8202.11(c), Insurance loss settlements.

  • 176 Freddie Mac, Single-Family Seller/Servicer Guide, § 8202.11(c), Insurance loss settlements.