GSEs Amend Guidelines Regarding Property Insurance Requirements

Fannie Mae and Freddie Mac issued new seller/servicer guidelines regarding minimum property insurance requirements.

In February 2024, the GSEs initially adopted rules requiring that sellers/servicers must verify that property insurance for GSE mortgages provides full replacement cost value (RCV) coverage (or coverage of the unpaid principal balance so long as the coverage amount is no less than 80% of the verified RCV).  With respect to how to perform this verification of the property’s RCV, the GSEs indicated that sellers/servicers could use sources such as the property insurer, an independent insurance risk appraiser, a replacement cost estimator, or other similar types of professionals.  The industry raised concerns that requiring this type of RCV verification for every property—presumably annually when policies are renewed—would be administratively and operationally complex and costly.  In May 2024, the GSEs indicated that they would not enforce compliance with the verification requirement while they evaluated potential changes or alternatives to the requirements.

On March 18, 2026, the GSEs issued updated requirements which rescind the verification component of the prior rule, remove the option to base coverage on the unpaid principal balance, and allow roofs to be insured at a lesser amount.  Both GSEs new guides are substantially similar and provide in relevant part that:

• The property securing the mortgage must be covered by an insurance policy that provides coverage on a replacement cost basis, excluding roofs;

• Roofs must be insured but do not have to be covered on a replacement cost basis (i.e., roofs may be covered on an actual cash value basis); and

• The GSEs recognize that some insurers may issue policies that provide coverage on an actual cash value basis for personal property and structures that are not buildings, which is acceptable.

The new guides also amend property insurance requirements for master property insurance policies which cover project developments and individual property insurance policies for units within project developments, and make other changes to servicer obligations in connection with property insurance.