Mortgage Loan Originator (MLO) Licensing Practice Test

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Question: 1 / 605

How much hazard insurance does FNMA require on a property?

50% of the loan amount

Full market value of the home

100% of the lesser of the loan amount or the cost to restore improvements

Fannie Mae (FNMA) requires that hazard insurance coverage be at least 100% of the lesser of the loan amount or the cost to restore improvements. This requirement ensures that if a property suffers a loss due to a hazard such as fire or wind damage, the insurance coverage is sufficient to cover the cost of repairs or reconstruction, thereby protecting both the borrower and the lender's investment.

This approach to insurance coverage is designed to minimize risk for both parties. If the coverage were provided at full market value or simply based on the loan amount without considerations for actual restoration costs, it could lead to insufficient coverage in the event of a significant loss. The specifics of this requirement help maintain the financial security and integrity of the mortgage loan process by ensuring adequate protection against unforeseen events that could adversely affect the property’s value.

Mortgage Loan Originator (MLO) Licensing Practice Test

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