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Question: Does the property insurance selected by borrowers need to be written by an insurer that meets certain credit rating requirements?

Answer:

Yes.  

Fannie Mae and Freddie Mac both require the insurance carrier selected by the borrower to meet a specific threshold credit rating category.  If the insurance carrier does not meet this threshold then the policy will not be acceptable to either agency.

For example, Fannie Mae requires any property insurance policy for the property securing a first mortgage, including master policies for project developments, to be written by an insurer that meets one of the rating requirements in the following table:

There are exceptions such as those for second mortgages and insurance policies secured by state Fair Access to Insurance Requirements (FAIR) plans.

Freddie Mac has similar but not identical requirements as indicated in the table below:

While HUD and VA do not maintain such requirements, lenders should be proactive in determining requirements of all investors (i.e. non-QM) as many non-traditional insurers have entered the marketplace and their credit rating may not meet the threshold required by the agencies or another applicable investor.