Master Policy Deductible Cap (Fannie Mae 5 Percent Limit)

Fannie Mae limits how high the master property deductible can go. Under the Fannie Mae Selling Guide (section B7-3, Property and Flood Insurance), the deductible on the required property policy generally may not exceed 5 percent of the face amount of the policy for a loan on a unit to be warrantable. The face amount is the insured value of the buildings, so the cap is a percentage of the coverage limit, not a flat dollar figure. A separate, higher windstorm or hurricane deductible is treated differently and is the usual exception to the 5 percent rule; this clause is about the standard all-perils deductible that applies to most losses.

A master deductible above the Fannie 5 percent line can quietly break warrantability, which is the point at which a unit backed by a conventional loan can stall at the lender's insurance review and a sale falls through. Boards often let a carrier raise the deductible to hold premium down at renewal without checking it against the cap. Two things follow from a high deductible: the sale-and-financing exposure just described, and a larger pass-through to owners, since whatever the master policy does not pay after a covered loss lands on the assessment base. Confirm the standard deductible against the 5 percent limit at each renewal, treat any separate wind or hurricane deductible as its own question, and tell owners the deductible in dollars so they can size HO-6 loss assessment coverage to it.

The 5 percent cap is a fixed lender requirement, but the deductible the carrier offers is a live negotiation, and buying the deductible down usually costs premium the board has to weigh. The recurring conflict is the wind or hurricane deductible in coastal markets, which is commonly written as a percentage of insured value well above 5 percent and is the standard exception to this cap rather than a violation of it. Where a percentage wind deductible sits above the line, confirm how the specific investor treats it for warrantability rather than assuming the whole policy is either compliant or not, and pair the analysis with loss assessment coverage sized to the pass-through.