For first lien home mortgages on 1-4 unit properties, the hazard insurance coverage must be equal to the lesser of:
- 100% of the insurable value of the improvements—as established by the property insurer, or
- Guaranteed Replacement Cost Endorsement, which provides that the insurer agrees to replace the insurable property, regardless of the cost or the Replacement Cost Endorsement, or
- The unpaid principal balance of the mortgage, as long as it equals the minimum amount (80%) of the insurable value (total appraised value minus the estimated site value) required to compensate for damage or loss calculated on a replacement cost basis
Note: Due to the revised agency appraisal form, which eliminated the site value box, the estimated site value can be submitted with a notation in the Comments section of the appraisal or an appraisal addendum signed by the appraiser.
If the hazard insurance is not equal to at least one of the above minimum coverage amounts, then additional hazard coverage that meets the minimum coverage amounts must be obtained before the loan can be purchased.
If the estimated site value, opinion site value, or an appraisal addendum signed by the appraiser is not available on the appraisal, the documents below are acceptable in the following order:
- Insurance value from the insurance agency
- Third party vendor (Marshall and Swift [example: Data Quick] may have been used by the vendor)
- If the site value is not noted, the tax assessor value from the title policy/commitment or tax assessment form may be used for the calculation
Hazard insurance policies that include optional coverage that is not required by Pennymac are acceptable, provided that Pennymac is not obligated to renew any part of the coverage not required hereunder.