Ensuring Compliance with Updated Fannie Mae and Freddie Mac Insurance Requirements: A Guide for Washington State Condominium Associations
Fannie Mae and Freddie Mac have updated their requirements in 2024 for condominium associations' master insurance policies, particularly concerning deductible limits that continue to catch communities and homeowners by surprise. These changes have had significant implications for communities, especially during real estate transactions.
Updated Requirements and Their Impact
Fannie Mae and Freddie Mac now mandate that master property insurance policy deductibles do not exceed 5% of the total insurance coverage amount. This means that if a condominium's master policy has a deductible higher than this threshold, it will not meet the eligibility criteria for a conventional loan backed by these entities.
Many condominium associations, unaware of these updated requirements, have encountered challenges during real estate transactions. It's often during the closing stage that the non-compliance is discovered, leading to rushed policy adjustments to meet lending criteria. Such last-minute changes can delay closings and cause financial strain on both sellers and buyers.
Proactive Measures for Compliance
To prevent these complications, it's essential for condominium boards and community managers to:
Regularly Review Insurance Policies: Ensure that the master insurance policy complies with current Fannie Mae and Freddie Mac requirements, particularly concerning deductible limits.
Consult with Insurance Professionals: Engage with insurance brokers or consultants who are knowledgeable about the latest lending requirements to receive guidance tailored to your community's needs.
Educate Homeowners: Inform unit owners about the importance of these requirements, as non-compliance can affect property values and the ease of selling or refinancing units.
Consequences of Non-Compliance
Failing to adhere to these deductible limits can render units ineligible for conventional financing. This limitation reduces the pool of potential buyers to those who can secure alternative financing or pay in cash, potentially decreasing property values and marketability.
Conclusion
Staying informed about and compliant with Fannie Mae and Freddie Mac's insurance requirements is crucial for condominium associations. Proactive policy reviews and adjustments can prevent transaction delays and maintain property marketability. Regular collaboration with insurance professionals and clear communication with homeowners will help ensure that your community remains in good standing with lending institutions.
