The Federal Housing Finance Agency and the government-sponsored enterprises have opened up some new insurance options for borrowers, departing from a strict coverage mandate for single-family homes.
Fannie Mae, Freddie Mac and the agency also known as US Federal Housing, partially relented on "replacement cost only" rules. Roofs no longer need to be insured on a replacement cost basis. Actual cash value coverage is now acceptable.
The option to use actual cost value for that purpose, which is in line with an exception also allowed by the GSEs' multifamily divisions, could help borrowers in single-family condominium units in particular, according to the agency.
Also, the announcement states that master insurance policies for condo projects can have a maximum $50,000 per-unit deductible.
These two changes aim in part to help rural areas struggling with coverage costs.
"Lower insurance costs and mortgage rates shrink the monthly payment of a new mortgage," FHFA Director Bill Pulte said.
The considerations involved
The current FHFA concluded that given roof insurance rates and availability have particular affordability concerns that outweigh the concern that an ACV policy may leave compromised roofs that pose a significant risk to mortgage companies with insufficient coverage.
Many insurers have been dropping policies for roofs more than 15 years old or forcing policyholders to switch to ACV when there aren't area rules prohibiting this, according to Winik LLC.
The FHFA concluded that allowing a cheaper option for that type of coverage while maintaining the replacement cost standard for the rest of the house balances risk and costs.
The decision was in line with some 2024 insurance group recommendations after Fannie and Freddie reiterated what they said were longstanding replacement costs standards. Coverage providers had contradicted this, saying these were new requirements.
The GSEs had initially responded by indicating they were not changing the rules and continuing to note noncompliance but would be open to discussing the matter before taking enforcement actions.
FHFA said Wednesday that the enterprises are "scrapping" the 2024 statements.
This action could help reduce coverage prices in the single-family mortgage market given the large number of loans the GSEs buy, according to Neil Alldredge, president and CEO of the National Association of Mutual Insurance Companies.
"Giving consumers more options to fit their needs and budgets will bring with it greater competition in the marketplace and help bring costs down," he said in a press statement.
Mortgage industry reactions
The Community Home Lenders of America and Mortgage Bankers Association President Bob Broeksmit also issued statements welcoming additional options the FHFA's changes brought to the table, addressing concerns their members have had.
Broeksmit estimated that the condo insurance changes would make "tens of thousands of units available for lower-cost GSE financing," and the streamlining would provide "operational relief to servicers."
"MBA will continue to work with the GSEs to improve their condominium project approval and insurance guidelines, expand condo financing opportunities, and strengthen market stability," he said.
The CHLA said its only concern was that an option for limited review was lost in the streamlining process, although it did appreciate that this was partially offset by increasing the size of smaller players that might qualify for a waiver to 10 from 4 with some new conditions.
"We urge Fannie and Freddie to explore ways to achieve its objectives on this issue in a less burdensome manner," the group said.
