Do mortgage lenders accept California FAIR Plan insurance?

Yes when it is the only coverage that can be obtained at closing. Fannie Mae Selling Guide B7-3-01 (12/14/2022) accepts a state’s FAIR Plan. The policy still has to meet the Guide’s required perils, replacement-cost settlement, deductible, and mortgagee clause.

This is for the processor or processing manager at an independent mortgage bank on Encompass whose HOI row is still open prior to docs because the binder came back as California FAIR Plan, not a standard HO-3. The counterparty is the insurance agency. Pull the conditions list, the FAIR Plan binder or declarations page, any wrap already in the eFolder, the loan number, and the lender’s legal name before you email the agent.

Fannie accepts the FAIR Plan as an insurer, not as a free pass

Fannie Mae Selling Guide B7-3-01 (12/14/2022) wants the insurer to meet an AM Best, Demotech, Kroll, or S&P rating. A state FAIR Plan is a separate exception. Fannie accepts policies obtained through state or territory insurance plans, including a state’s Fair Access to Insurance Requirements (FAIR) plan, if they are the only coverage that can be obtained at the time of the loan closing or policy renewal.

That exception is the carrier. It is not a waiver of B7-3-02 (08/05/2026), B7-3-07 (08/05/2026), or B7-3-08 (12/14/2022). Freddie Mac Guide 4703.1 (effective 09/16/2026, read 2026-10-14) names the same pool: a state insurance pool created by statute, including a FAIR plan.

The California FAIR Plan dwelling page (read 2026-10-14) calls the product a named-peril Dwelling Fire Policy for 1-4 unit dwellings when coverage is not available from a traditional company. What a mortgage lender needs from the homeowners insurance agent before closing is the rest of the packet.

Extended Coverage is the Fannie peril row

B7-3-02 wants a Special form or equivalent, and at a minimum fire or lightning, explosion, windstorm including named storms, hail, smoke, aircraft, vehicles, and riot or civil commotion. If any of those perils is excluded or limited, the borrower must obtain an acceptable stand-alone policy for the missing peril.

The FAIR Plan form does not start there. Sample dwelling fire form CFP 00 01 (05/2026) (effective 03/17/2026, read 2026-10-14) insures fire or lightning, internal explosion, and smoke. Extended Coverages, perils 4 through 9, attach only when the declarations show a checkmark: windstorm or hail, explosion, riot or civil commotion, aircraft, vehicles, and volcanic eruption.

Fannie B7-3-02 required peril	FAIR Plan basic form	FAIR Plan with Extended Coverage checked
Fire or lightning	Yes	Yes
Smoke	Yes	Yes
Explosion	Internal explosion only	Yes
Windstorm, including named storms	No	Yes
Hail	No	Yes
Aircraft	No	Yes
Vehicles	No	Yes
Riot or civil commotion	No	Yes

A fire-only FAIR Plan binder is not a Fannie 1-4 policy. Ask the agency to bind Extended Coverage, or to send a stand-alone policy for the missing perils. Freddie Mac Guide 4703.2 (effective 09/16/2026, read 2026-10-14) is the same: a secondary policy has to pick up any required peril the primary leaves off.

Replacement-cost settlement is a checkbox on the declarations

B7-3-02 treats a 1-4 policy as sufficient when it settles on a replacement-cost basis, except roofs. Matching Coverage A to the loan amount is overlay. How much homeowners insurance coverage Fannie Mae requires is that row.

The FAIR Plan form defaults the other way. CFP 00 01 (05/2026) settles a total loss at actual cash value measured by fair market value, and a partial loss at actual cash value after depreciation, unless Dwelling Replacement Cost is checked on the declarations. That checkbox is the Fannie settlement test. Do not bounce the file for a Coverage A number below the note amount when replacement-cost settlement is already on the form. Do bounce it when the dwelling is still actual cash value.

The deductible still has to sit at or under 5 percent of the coverage amount, including any separate peril deductible.

The California Department of Insurance ordered (11/14/2019) a $3 million combined dwelling coverage limit effective 04/01/2020. The FAIR Plan Plan of Operation (read 2026-10-14) still caps Division I fire and allied lines at $3 million at one location. A jumbo file whose rebuild sits above that cap is a different packet.

A DIC wrap is overlay for water, theft, and liability

The FAIR Plan says (read 2026-10-14) a Difference in Conditions policy covers water damage, theft, and liability, which the Plan does not write, and that the Plan does not sell DIC. CDI’s residential-market fact sheet (01/13/2025, read 2026-10-14) found about one new or renewed DIC policy for every two FAIR Plan policies.

Fannie 1-4 does not require liability, theft, or water. A shop that will not clear HOI without a wrap is overlay. On r/InsuranceAgent in May 2026, agents said many lenders still want optional FAIR Plan coverages for wind and hail, plus a DIC wrap for liability and water. Treat that as a desk report, not a Guide rule.

If a DIC wrap is on the file, it is a second policy. Put the same mortgagee clause on it. What is required in a mortgagee clause is the line. A DIC carrier covering a Fannie required peril the FAIR Plan left off still has to meet B7-3-01’s rating table, unless that carrier is itself a state plan.

Earthquake is another policy. The FAIR Plan offers CEA coverage only to customers who already have a dwelling fire policy. Fannie does not require earthquake. Flood is B7-3-06. Do not copy either onto the HOI condition.

Fannie, Freddie, FHA, VA, and USDA do not ask for the same proof

Agency	FAIR Plan as the carrier	What still has to be on the packet
Fannie Mae	Yes, if it is the only coverage at closing (B7-3-01, 12/14/2022)	Required perils, replacement-cost settlement except roofs, deductible at or under 5%, standard mortgagee clause
Freddie Mac	Yes. 4703.1 names a state FAIR plan as an acceptable insurer (effective 09/16/2026)	Required perils; a secondary policy for any peril the primary leaves off (4703.2); standard mortgage clause and 10 days’ cancel notice (4703.6)
FHA	Not named. HUD Handbook 4000.1 (read 2026-10-14) wants Evidence of Hazard Insurance in the case binder	Shop overlay. 4000.1 does not publish Fannie’s insurer-rating table
VA	Not named. VA Lender’s Handbook, Chapter 9, Topic 11 (07/30/2019, read 2026-10-14) wants hazard insurance of a type and amount customary in the locality, obtained prior to closing	Overlay. VA does not publish an insurer-rating table
USDA	Not named. HB-1-3555 Chapter 16.12(C) (read 2026-10-14) wants a hazard policy in force at closing	Overlay

Portfolio and jumbo overlays can still bounce a carrier that has no AM Best rating. That bounce is overlay, not B7-3-01. Combined FAIR Plan plus DIC premium is the escrow number.

What to take and what to bounce

What landed in the eFolder	Take it?	Why
FAIR Plan binder or issued dec, Extended Coverage checked, Dwelling Replacement Cost checked, deductible at or under 5%, this lender as mortgagee, dates on or before closing	Yes	B7-3-01 carrier exception plus B7-3-02, B7-3-07, B7-3-08
Same packet plus a DIC wrap with the same mortgagee clause	Yes, if the shop overlay wants the wrap	Overlay. Does not replace Extended Coverage on the FAIR Plan
Fire-only FAIR Plan, no Extended Coverage and no stand-alone for wind, hail, explosion, aircraft, vehicles, riot	No	Missing B7-3-02 required perils
FAIR Plan on actual cash value with no Dwelling Replacement Cost checkbox	No	B7-3-02 wants replacement-cost settlement on the dwelling
Quote, proposal, or application	No	Not a policy
CEA earthquake declarations labeled as HOI	No	Earthquake is a separate policy
Condo unit FAIR Plan personal-property form in place of the project master	No	B7-3-07 still wants the current master or a certificate covering the unit
Prior lender as mortgagee on a refinance	No	This lender’s clause

What an insurance binder should include for a mortgage is the field list. Take a binder or a declarations page if the fields are filled.

Open the conditions list next to the FAIR Plan binder or declarations page already in the eFolder. Read the declarations for Extended Coverage, Dwelling Replacement Cost, the deductible, and this lender as mortgagee. Email the agency for any missing checkmark or clause, and for the DIC wrap only if the shop overlay names it. Log the sent date that afternoon.