Trade groups across the insurance industry are cheering a key policy shift from Fannie Mae and Freddie Mac on homeowners insurance requirements—one they say could meaningfully cut costs for both current homeowners and prospective buyers.
This week, the Federal Housing Finance Agency announced a notable policy reversal: Fannie Mae and Freddie Mac will no longer require homes with federally backed mortgages to carry full replacement-cost insurance—rolling back a rule introduced in February 2024 and potentially easing the financial burden on borrowers.
“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 coverage often comes with a higher price tag—something National Association of Mutual Insurance Companies says effectively acted as a “backdoor mandate,” limiting access to more affordable policies that factor in depreciation.
“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.
National Association of Mutual Insurance Companies said it pushed back against the rule early on and helped secure a pause in May 2024. Still, the group noted that many mortgage lenders continued citing the policy to deny consumers and prospective homebuyers access to more affordable alternatives.
Meanwhile, pressure mounted on Capitol Hill. Lawmakers—including Reps. Mike Flood and Addison McDowell, along with Sen. Eric Schmitt—raised concerns throughout the debate, warning that the rule restricted consumer choice and drove up costs. McDowell pointed to a letter signed by 45 House Republicans urging the Federal Housing Finance Agency to restore the option for actual cash value insurance on mortgages backed by Fannie Mae and Freddie Mac.
“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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