Fannie Mae & Freddie Mac – Homeowner’s Insurance Coverage

Question:

Our clients are experiencing challenges with homeowners’ insurance coverage due to the age of their roof. The policy covers issues such as a home burning down, but when it comes to the roof, the policy will only cover ACV (actual cash value) based on the age of the roof. Will the agencies accept this?

Answer:

Agency guidelines clearly state that policies that limit, depreciate, or reduce losses for specific elements (such as the roof) at anything other than a replacement cost basis are not acceptable.

The property insurance policy must provide for claims to be settled on a replacement cost basis. Property insurance policies that provide for claims to be settled on an actual cash value basis are not acceptable. Policies that limit, depreciate, reduce, or otherwise settle losses at anything other than a replacement cost basis are also not acceptable.

This means that a policy with ACV coverage specifically for the roof would not meet Fannie Mae’s requirements.

You would need to either:

• Find another insurer that will provide replacement cost coverage for the roof despite its age, or
• Obtain an acceptable stand-alone property insurance policy that provides adequate replacement cost coverage for the roof.

MortageGuidelines.com Resource:

MortgageGuidelines.com offers an All-Agency Comparison Chart for ‘Homeowner – Hazard Property Insurance 1-4 Units,’ accessible under ‘Guideline References’ in the ‘Charts & Checklists’ section of the ‘All Agency’ section.