What is one purpose of hazard insurance required by Fannie Mae?

Hazard insurance plays a critical role in mortgage lending, particularly for loans backed by Fannie Mae. One of its primary purposes is to ensure that if a property is damaged—due to events like fire, flood, or other disasters—the home can be rebuilt or repaired. This financial protection is essential for both borrowers and lenders; it provides borrowers with peace of mind that their home investment can be restored in the event of a loss, and it protects the lender’s collateral, which is the home itself.

Options that focus on covering lost potential income or safeguarding against theft of personal property do not address the primary function of hazard insurance. Similarly, while fluctuations in market value are relevant to homeowners, hazard insurance is not designed to protect against these economic changes; instead, it specifically targets physical damage to the property. Thus, the correct answer highlights the insurance's role in maintaining the integrity and value of the structure itself.