Condo community representatives from nearly three dozen states flocked to Washington, D.C., last week to raise concerns over insurance requirements set by mortgage finance giants Fannie Mae and Freddie Mac.
About 195 condo association members and owners held some 160 meetings with legislators as part of the annual Community Associations Institute’s Congressional Advocacy Summit, according to Dawn Bauman, the organization’s senior vice president of government and public affairs. They were seeking changes to rules they argue force them to choose insurance coverage with higher premiums.
The rules are set by Fannie Mae and Freddie Mac, two government-controlled organizations that buy mortgage loans from lenders and package them into securities for investors. As part of the process, the mortgage finance giants set insurance requirements for the loans they will buy, and many lenders follow that guidance.
"Thousands of condominium buildings can't meet the requirements,” Bauman said. "In some areas of the United States, the insurance products to meet the requirements for condominium lending are simply not available or they are so extraordinarily expensive that an association can't purchase that insurance in a practical manner."
The insurance requirements present three key issues. First, many associations are forced to choose replacement cost insurance to cover property damage, but this tends to cost more since it considers the full value of what needs replacement without depreciation. Second, premiums for insurance are often too high for associations. Third, the owners of units in buildings undergoing repairs often get banned from lending or welcoming new buyers and mortgages while those projects are ongoing.
CAI members, Bauman said, are seeking a change that would allow them to buy policies that reflect actual cash value, which subtracts depreciation from the original value of whatever needs replacing, such as a roof. Next, they want an increase in the standard 5% maximum deductible set by Fannie and Freddie in hopes that will allow them to reduce the annual premium cost. Finally, they want Fannie and Freddie to approve condo loans and mortgages for buildings simultaneously undergoing critical repairs.
Fannie Mae, Freddie Mac and officials at their regulator, the Financial Housing Finance Agency, declined requests for comment.
Floods, hurricanes, wildfires and other natural disasters have steadily pushed insurance costs higher over the decades. The collapse of 12-story Champlain Towers South in Surfside, Florida, killed 98 people and led to further widespread changes. States and municipalities expanded condo regulations, many striving to ensure the safety of buildings. The changes increased costs for owners through repairs and insurance, and Fannie Mae and Freddie Mac expanded a list of properties they would not work with because their condition or safeguards made them too risky as investments.