At the behest of their conservator, Fannie Mae and Freddie Mac are taking steps to simplify their insurance requirements, including easing standards for homeowners insurance. The changes are being issued together to ease the transition and address the interests of borrowers, unit owners, and project developments.
The updates “support a more stable and resilient housing finance system and manage financial risk,” Fannie Mae said, and “reflect our commitment to supporting sustainable homeownership and reducing operational complexity for sellers and servicers.”
“American homebuyers are about to get a break,” the Federal Housing Finance Agency, Fannie and Freddie’s conservator, said in its announcement. The new rules “will help to lower home insurance bills for millions of families, especially in rural areas and condo buildings.”
With the changes, condominium apartment buildings can purchase less expensive roof coverage with larger deductibles. Also, damage claims will be processed more quickly.
On the single-family side, meanwhile, the government-sponsored enterprises will now accept actual cash value coverage on roofs. This “fixes a real problem,” the FHFA said. “Full replacement roof coverage has become ridiculously expensive and hard to find in many states.”
The rest of the house must still be full replacement cost value protection.
“If you’re buying a home or condo, or already own one with a Fannie or Freddie mortgage, your insurance bill just got easier to swallow,” the FHFA trumpeted.
While continuing to remain focused on mitigating risk, the enterprises say they recognize the hardship rising insurance premiums and the limited availability of coverage is having on borrowers and homeowner associations.
To help ensure that borrowers and HOAs have access to insurance that is still compliant with their insurance requirements, the GSEs — aka the agencies — are introducing targeted changes that provide lenders and servicers with greater flexibility and operational simplicity. The changes also strengthen project standards designed to promote the financial resilience and long-term sustainability of condominium projects.
Effective immediately, project review waivers are expended to include properties with 10 or fewer units. Projects with five to 10 units must be part of a larger development or a master association. Waivers are available when the project does not have a manager, the property meets all insurance requirements or, if the loan is a Fannie Mae to Fannie Mae limited cash-out refinance, there are no critical repairs or evacuation orders in place.
Also immediately, the GSEs will no longer require new or newly converted multi-unit properties in Florida to submit separate eligibility reviews. Moving forward, approval, like all other new projects with attached units in the state, can be reviewed under the lender-delegated Full Review process.
In another immediate change in policy, the investment property concentration limit — 50% of established projects — is eliminated when investor loans are part of a full review. But the 50% limit for established projects still applies when it comes to pre-sales.
Limited review processes are now gone, too. Established projects previously eligible for a limited review must now be reviewed using the full review process or, when applicable, the waiver process. Lenders can implement this change right away if they so choose, but must do so for all loan applications dated after August 3.
The insurance updates are being undertaken after “extensive market outreach” brought on by lenders and servicers both raising concerns about their ability to meet requirements set down in February 2024.
For starters, the rules related to documenting the replacement cost value to verify the property insurance policy coverage meets the proper amounts are being scrubbed. Also being jettisoned are rules requiring that roofs be insured on a replacement cost basis.
Now, the property insurance policy must provide coverage on a replacement cost basis, with the exception of roofs, which must be insured, but not necessarily on a replacement cost basis. At the same time, cash value policies covering personal property and outbuildings that are not part of the apartment building are now acceptable as well.
The agencies also are revising the requirements related to documenting the replacement cost value to verify the master property insurance policy coverage amount. They also are retiring the requirement to insure roofs on a replacement cost basis. And they are dropping the necessity that project developments have inflation guard coverage.
The GSEs are replacing their requirements related to when a borrower is required to obtain an individual property insurance policy, and are replacing their rules related to sufficient coverage.
Now, borrowers must have a condo owners policy when any portion of the interior of the apartments are not covered by the master property insurance policy, or the master policy includes a per unit deductible. And coverage amounts must be sufficient to cover any part of the apartment interior.
Concerning deductibles, meanwhile, the maximum now allowable per unit is either 5% of the property insurance coverage amount or $2,500.
