Fannie Mae told mortgage servicers Friday that any deals that would compromise mortgage insurance on loans delivered to the government-sponsored enterprise are strictly prohibited. Fannie issued a servicer policy update clarifying its prohibitions on loss sharing, indemnification and settlement agreements with mortgage insurers. “Fannie Mae reminds servicers of their contractual obligation and responsibility to ensure that any mortgage insurance coverage required at the time a loan is delivered to Fannie Mae is maintained and remains in force to protect Fannie Mae’s interests in its mortgage loans at all times, unless the conditions that Fannie Mae imposes for replacing or canceling the coverage are met,” the guidance stated. Fannie Mae clarified that arrangements that compromise mortgage insurance coverage are generally inconsistent with protecting the GSE’s interests in mortgage loans. “Effective immediately, Fannie Mae is prohibiting servicers from entering into any agreement that modifies the terms of an approved mortgage insurance master policy on loans delivered to Fannie Mae.” Prohibited agreements include, but are not limited to, agreements that directly or indirectly:

• Modify master policy provisions for settling of claims

• Limit the right of a mortgage insurer to conduct file reviews or investigate claims

• Limit the right of a mortgage insurer to rescind coverage

• Rescind or modify coverage,

• Restrict notice to Fannie Mae of changes in coverage status.

Fannie said servicers must also disclose any such agreements previously enacted with mortgage insurers. Write to Kerry Curry. Follow her on Twitter @communicatorKLC.