Freddie Mac Single-Family Seller/Servicer Guide 8202.5 — Servicer responsibilities to monitor insurance claims and disburse insurance loss proceeds

This section contains requirements related to: ■ Servicer responsibilities for insurance claims ■ Reporting damage to the Mortgaged Premises ■ Disbursing loss proceeds ■ Repair or reconstruction of the Mortgaged Premises ■ Final inspection of the Mortgaged Premises

(a) Servicer responsibilities for insurance claims Upon notification of loss or damage to the Mortgaged Premises, the Servicer must monitor and coordinate the claim process with the Borrower and the insurer. The Servicer must take appropriate action to: ■ Verify the extent of the loss or damage ■ Ensure judicious disbursement of insurance proceeds for the necessary repairs ■ Protect the priority of the Mortgage by obtaining, where necessary, waivers of materialman’s or mechanic’s liens ■ Document details concerning the loss or damage, completion of the repairs and disposition of the insurance proceeds in the Mortgage file ■ Prohibit payment of fees out of the insurance loss proceeds to any public adjuster or other third party retained by the Borrower to assist with the recovery of those proceeds unless agreed to by Freddie Mac in writing ■ Refer to Chapter 8403 for additional requirements on Abandoned Properties (as defined in Section 8403.1), distressed properties or properties that pose a Risk of Property Ownership

(b) Reporting damage to the Mortgaged Premises The Servicer does not need to submit a report and related recommendations to Freddie Mac unless: ■ The Mortgage is in foreclosure ■ The Mortgaged Premises is abandoned and/or has been acquired by the Servicer through foreclosure or deed-in-lieu of foreclosure. (See Section 9603.1(d)(ii)) for remittance requirements for insurance loss settlements.) ■ The insured improvements have suffered a total or near total loss ■ The insured improvements cannot be rebuilt ■ The Servicer wishes to apply insurance proceeds to the Mortgage debt instead of repairing the property, or ■ Insurance proceeds exceed the amounts required to restore the property to its original condition If any of the above conditions exist, the Servicer must submit the recommendation along with the appropriate documentation to Freddie Mac (see Directory 5) within five Business Days of learning of the situation.

(c) Disbursing loss proceeds If a Servicer receives an insurance claim check for contents or living expenses, the Servicer must release the insurance funds to the Borrower without delay. When the Mortgaged Premises has suffered a loss, the Servicer must follow the requirements in the below table for releasing proceeds: Requirements for releasing loss proceeds Insurance loss draft Mortgage current or less than 31 days delinquent at the time of loss Mortgage 31 or more days delinquent at the time of loss Initial loss draft The Servicer may release insurance proceeds up to the greater of: If the proceeds are less than or equal to $5,000, the Servicer may disburse in one payment. Requirements for releasing loss proceeds Insurance loss draft Mortgage current or less than 31 days delinquent at the time of loss Mortgage 31 or more days delinquent at the time of loss ■ $40,000 ■ 33% of insurance proceeds or ■ The amount by which the release funds exceed the sum of the UPB, accrued interest and advances on the Mortgage If the proceeds are greater than $5,000, the Servicer may make an initial disbursement of 25% of the insurance proceeds but no more than the greater of: ■ $10,000 or ■ The amount by which the release funds exceed the sum of the UPB, accrued interest and advances on the Mortgage Additional loss drafts The Servicer may distribute remaining funds based on the repair plan reviewed and approved by the Servicer. The Servicer may distribute remaining funds in increments not to exceed 25% of the insurance loss proceeds. Inspections The Servicer must inspect repairs prior to release of any remaining funds. For Mortgages that were current or less than 31 days delinquent at the time of loss, the Servicer may use either physical/onsite inspections or remote inspections to confirm the progress or completion of repairs at the property. The Servicer may use Borrower-submitted photos and/or video, or conduct Servicer-directed video calls with the Borrower to document the progress or completion of repairs at the property if the Servicer can, when conducting such inspections: ■ Determine the documented repairs are from the location of the property ■ Authenticate when any Borrower-submitted photos or video were taken and that such photos or video were not altered in any way, and ■ Clearly identify the repairs that are being documented and confirm the repairs (a) were completed in accordance with the insurance adjuster’s itemized estimate and the repair plan, and (b) do not affect the safety, soundness or structural integrity of the property or the ability to obtain an occupancy permit Requirements for releasing loss proceeds Insurance loss draft Mortgage current or less than 31 days delinquent at the time of loss Mortgage 31 or more days delinquent at the time of loss For remote inspections conducted by video call with the Borrower, the Servicer must also retain video or photo records of the call that clearly document the Servicer’s compliance with the above requirements. For Mortgages that are more than 31 days delinquent at the time of loss, Servicers must schedule physical inspections to confirm the progress or completion of repairs. Funds payable The Servicer may issue insurance proceeds payable only to the Borrower. A Servicer may unilaterally apply the insurance proceeds to the Mortgage’s unpaid balance only to the extent allowed by applicable law and the Security Instrument. The Borrower, however, may unilaterally decide to have the proceeds applied to the Mortgage’s unpaid balance. If repair or reconstruction of the residence is expected to take more than three months, insurance funds retained by the Servicer pending disbursement for such repair or reconstruction must be maintained in a federally insured account that pays interest to the Borrower. The Servicer may be named as loss payee on insurance drafts and must comply with any applicable law and, where applicable, any requirement of the FHA, VA, RHS or MI.

(d) Repair or reconstruction of the Mortgaged Premises In overseeing the repair or reconstruction of damaged or destroyed residences, the Servicer should, to the extent applicable, practicable and required, ascertain that: ■ The contractor chosen by the Borrower to repair or reconstruct the residence is: ❑ Qualified and experienced to perform the types of work contracted ❑ Financially able to complete the repair or reconstruction within scheduled time frames ■ The plans and specifications for the work contracted: ❑ Describe repair or reconstruction that is generally consistent with the damage or destruction suffered by the residence, as reported in the proof of loss filed by the Borrower with the property insurer and as documented by the insurer’s adjuster ❑ Establish a reasonable schedule for completion of each phase of repair or reconstruction ■ The Borrower and the contractor have executed a contract by which they agree to the following: ❑ The contractor will perform the work described in the plans and specifications ❑ The contractor will comply with applicable codes and regulations governing residential repair or reconstruction (including, but not limited to, building codes and zoning, permit and inspection regulations). These codes and regulations may vary from State to State and, within the same State, from county to county. Therefore, Servicers should have adequate measures in place to verify contractors’ and inspectors’ compliance certifications to protect Freddie Mac’s and the Servicer’s respective investments. If additional funds are needed to bring a damaged or destroyed residence into compliance with applicable codes and regulations, the Borrowers should determine whether their property insurer will waive any policy provision restricting payment for the increased cost of construction resulting from enforcement of codes and regulations. ❑ A specified dollar amount is the maximum amount that the contractor may charge for the work ❑ The contractor will be paid a specified advance (if applicable, usually not exceeding 10% of the total contract amount) and, subsequently, on a specified draw schedule contingent on verification of satisfactory completion of specified work phases. If the Mortgage status at time of notification is 31 or more days delinquent at time of loss, released funds must not exceed 25% increments of insurance loss proceeds. ❑ The contractor, its subcontractors and its material suppliers will provide written acknowledgment of payment for work performed and materials supplied and the necessary lien waivers or releases so that the Mortgaged Premises may remain clear of all such liens and encumbrances ■ Each scheduled work phase has been satisfactorily completed in accordance with the plans and specifications in the contract The Servicer may choose to have the above-described oversight functions performed by its staff or by a third party (such as a specialized firm or another Servicer). However, the Servicer is liable for the performance of any third party it retains. The third party may be compensated from insurance proceeds retained by the Servicer only to the extent agreed to by the Borrower and allowed under applicable law.

(e) Final inspection of the Mortgaged Premises The Servicer must follow the requirements below regarding the final inspection. Requirements for final inspection Mortgage current or less than 31 days delinquent at the time of loss Mortgage 31 or more days delinquent at the time of loss A final inspection is not required. A final inspection is always required to ensure all repairs are completed.