Announcement 2025-030 Fannie Mae Inflation Guard Coverage Guidance
Newrez LLC "Newrez" Approved Correspondent Clients: Fannie Mae Inflation Guard Coverage Requirements for Project Developments.
Fannie Mae has provided guidance to help lenders understand how to comply with the Selling Guide requirements for Inflation Guard Coverage.
The guidance is not a revision or replacement to the policy published in Fannie Mae Selling and Servicing Guides. It is intended to provide clarity on Fannie Mae’s expectations to comply with the policy. Lenders obligations under section A2-1-03 of the Selling Guide, Indemnifications for Losses remains unchanged with respect to a loss resulting from insufficient insurance coverage.
Generally, inflation guard coverage is a property insurance provision that increases the replacement cost value and the coverage amount to help keep up with rising repair/reconstruction costs. Terms can vary by insurer, but coverage is typically increased at least annually or throughout the policy term.
As stated in the Selling Guide section B7-3-03, Master Property Insurance Requirements for Project Developments, master property insurance policies for project development (condo, co-op, PUD) are required to include inflation guard coverage unless the coverage is not obtainable in the insurance market available to the associate.
Below are options to satisfy Fannie Mae inflation guard coverage requirements:
- Master property insurance policy includes inflation guard coverage – No additional information is required.
- Master property insurance policy includes an Extended Replacement Cost (ERC) or Guaranteed Replacement Cost (GRC) endorsement (or equivalent coverage) – Inclusion of one of these endorsements (or equivalent coverage) is acceptable as they provide a similar level of protection as inflation guard. No additional explanation from the insurance agent is required.
- Master property insurance policy does not include one of the options above:
- Insurance agent/insurer confirms that inflation guard coverage is not obtainable from the current insurer – Confirmation from the insurance agent/insurer that inflation guard coverage cannot be obtained from the current insurer sufficiently documents that the coverage is not obtainable in the insurance market available to the association.
Or
- Evidence of insurance or insurance agent/insurer confirms that they complete an annual review of the coverage amount and they increase the coverage amount to not less than 100% of the replacement cost value (RCV) each year – This is acceptable in lieu of the policy having inflation guard coverage as it achieves the spirit of the policy intent.
- Note: Confirmation of an annual review of the coverage amount without confirmation that the coverage is increased to at least 100% of the RCV is not sufficient.
The above guidance will expire on December 31, 2026, upon written recession, or upon issuance of an Announcement or Lender Letter that amends the Guide requirements, whichever occurs first.