Insurance Companies making getting a mortgage harder

Feb 13, 2025

Minneapolis, MN: “The growing crisis in the insurance industry may make it hard to get a mortgage in parts of the country in the coming decades”, Federal reserve Chairman Jerome Powel correctly stated recently.

The insurance industry, beaten up hard by large costly events, like hurricanes, and California wildfires, combined with the dramatic increase in the cost to fix cars, and rebuild homes, have had no choice but to dramatically increase premiums, severely limit coverages, or in some areas, leave the market altogether.

Worse yet, insurance company reduced coverages are now conflicting with Fannie Mae and Freddie Mac underwriting guidelines.

For example, almost all homeowners insurance is switching to something known as ACV roof coverage. ACV stands for “actual cash value. This basically means they will pay out roof claims on a depreciated value, not full replacement. They are also all switching to higher deductibles for roofs. Your home overall may have a $1,500 deductible, but your roof might have a 2% or 3% deductible. So a sample $400,000 home could have a roof deductible of as much as $12,000.

Now assume a storm tears off your 10-year old roof. A new roof might be $18,000. As the roof is at half its 20-year lifespan, your depreciated claim is now just $9,000. Your deducible is $12,000. Congratulations, you get zero insurance claim for your lost roof. This is a simplistic example, but you get the point.

Fannie Mae and Freddie Mac Disconnect

Fannie Mae and Freddie Mac will not offer a loan on a home with ACV coverage, but it is now almost impossible to find anything but ACV coverage if your roof is more than 7-years old.

If you can’t get the coverage you need to satisfy underwriting guidelines, you’ve got a big problem!

I don’t see insurance changing anytime soon, so it looks like it will be up to Fannie Mae and Freddie Mac to adjust their guidelines to meet the current insurance industry realities.

If you live in Minnesota or Wisconsin, we work with insurance companies like Reliable Insurance, that completely understand the issues, and can navigate around the craziness between the mortgage and insurance worlds in order to get your home loan closed.