Insurance industry trade associations are applauding a decision to change the homeowners insurance required by Fannie Mae and Freddie Mac, which the trades said will lower costs for homeowners and buyers.
The Federal Housing Finance Agency this week announced the quasi-governmental corporations that buy mortgages from lenders will not require properties with a federally backed mortgage to have full replacement cost value homeowners insurance, reversing a change made in February 2024.
“Limiting consumers to only the most expensive coverage just made buying a home that much more difficult, and created real harm for the homeowners market,” said Neil Alldredge, president and CEO of the National Association of Mutual Insurance Companies. “The vast majority of mortgages are backed by the (government-sponsored enterprises), and so keeping costs needlessly high probably prevented some consumers from becoming homebuyers.”
Full replacement cost insurance typically comes with a higher cost, which “worked as a de facto regulation” to prevent other more affordable options that consider depreciation, NAMIC explained.
“Giving consumers more options to fit their needs and budgets will bring with it greater competition in the marketplace and help bring costs down,” Alldredge said.
NAMIC said it opposed the change and helped earned a pause in the requirements in May 2024, but the organization said mortgage lenders continued to reference the change while denying consumers and would-be homebuyers alternative options. Dozens of members of Congress, led by Reps. Mike Flood, R-Neb., and Addison McDowell, R-N.C., as well as Sen. Eric Schmitt, R-Mo. voiced concerns throughout the debate, citing limits on consumer choice and affordability. McDowell said a letter cosigned by 45 Republicans in the House urged the FHFA to bring back the option for actual cash value insurance policies for Fannie- and Freddie-backed mortgages.
“We should be doing everything in our power to make homeownership attainable – especially in rural towns,” McDowell said. “I commend [FHFA Director William J. Pulte] and the Trump Administration’s action in restoring common-sense consumer choice to the housing market.”
“We appreciate FHFA’s willingness – along with Fannie Mae and Freddie Mac – to engage directly with insurers and other stakeholders to better understand the real-world impacts of the February 2024 guidance,” said Karen Collins, vice president of property and environmental for the American Property Casualty Insurance Association. “That engagement was critical in recognizing how certain requirements were contributing to higher costs, reduced coverage availability, and unintended challenges for condominiums and other properties.
“At a time when families are struggling with rising living costs and housing affordability challenges, policies grounded in real-world market conditions can make a meaningful difference.”
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