Pulte got the condo insurance call right

Enjoy complimentary access to top ideas and insights — selected by our editors.
Want unlimited access to top ideas and insights? Subscribe Now

Last week, Federal Housing Finance Agency Director Bill Pulte announced that the GSEs were rolling back roof insurance requirements for condo buildings to allow them to purchase actual cash value (ACV) policies instead of policies requiring replacement cost value (RCV). With ACV policies, condos only pay for the appraised value of a roof, a value that depreciates every year, instead of full replacement cost.

Last year, Rep. Addison McDowell (R-N.C.), spearheaded a letter signed by over 45 House GOP members urging the FHFA to reconsider guidance limiting ACV homeowners' insurance policies for federally backed mortgages.

"We should be doing everything in our power to make homeownership attainable - especially in rural towns," McDowell said. "I commend Director Pulte and the Trump Administration's action in restoring common-sense consumer choice to the housing market."

READ MORE: FHFA loosens insurance rules targeting condos, rural loans

Discussions regarding Biden-era rule changes for condo roof replacement centered on the tension between rising insurance costs, lender safety requirements, and the need for structural repairs following the 2021 Surfside condominium collapse. But the rising cost of repairs, insurance and building financial reserves is too high for most condominiums. 

New local laws adopted after 2021 placed significant requirements for maintenance and financial reserves for condos, in some cases forcing residents to consider selling their properties to developers or converting to rentals. Again, the big culprit here is inflation.

Prompted by the Surfside collapse, Fannie Mae's revised 2023 condo guidelines heavily focused on structural safety and financial health. Key rules included mandatory reviews of engineering reports, strict prohibition of projects with critical deferred maintenance or high unfunded repairs, minimum reserve funding (10%), and strict insurance coverage requirements.

If you have replacement cost value coverage, your policy will pay the cost to repair or replace your damaged property without deducting for depreciation.  If you have ACV coverage, on the other hand, your policy will pay the depreciated cost to repair or replace your damaged property.  

Many residential properties have market values below the cost to replace the home, but national carriers typically require 100% replacement coverage for single-family properties. The cost pressure from inflation of building and maintenance costs is another significant factor behind the political pressure for a change.

"In many rural markets, ACV policies are not only more affordable, but they are often the only policies available," noted the 2025 McDowell letter. "National carriers are already reducing their presence in certain high risk or low population regions, leaving Farm Bureaus and smaller regional insurers as the only viable option for families." 

"These local carriers often provide ACV coverage as a practical, state regulated solution. Prohibiting those products from eligibility under GSE standards risks cutting off the last viable coverage option for families in our states."

Some industry observers dismissed Pulte's announcement as an election year stunt. "Blaming a predecessor in such a foul and disrespectful way doesn't square with the reality of the original intentions," wrote New York real estate analyst Jonathan Miller, "and it diminishes FHFA's credibility even further." 

But in fact Bill Pulte got this one right, say other industry executives, who believe that the critics are missing the key point. "I worked at Fannie Mae and had first-hand experience with this issue," commented another executive. 

"Replacement cost value was always the GSE requirement. FHFA wasn't solving for a real problem, but was instead chasing headlines to produce a deliverable on climate" for the Biden Administration.

The Community Home Lenders of America and Mortgage Bankers Association President Bob Broeksmit issued statements welcoming additional options the FHFA's changes made possible for condominiums.

Broeksmit estimated that the condo insurance changes would make "tens of thousands of units available for lower-cost GSE financing," and the streamlining would provide "operational relief to servicers."  

While lower insurance costs are certainly welcome, the industry is more concerned at present with rising mortgage interest rates. After getting down into the 5s earlier this year, 30-year fixed mortgage rates have followed Treasury yields higher since the start of the Iran war. The 10-year Treasury note rose to a yield of 4.4%, dragging mortgage yields back up to 6.25% last week. 

On March 13th, the Trump Administration also issued an executive order to roll back a number of rules and regulations that were put in place after the 2010 Dodd Frank law to encourage more availability of credit for housing from banks.  

"Over more than a decade, a wave of regulatory changes — driven largely by the Dodd-Frank Act and subsequent rulemaking — has dramatically increased the cost and complexity of accessing a mortgage," the White House noted.

READ MORE: Mortgage deregulation: praise and peril from Trump's EO

The EO by President Trump walks back a laundry list of retrograde housing policies largely championed by Democrats that have hobbled bank participation in the residential mortgage market since 2008, including:

• Directing the Consumer Financial Protection Bureau to appropriately tailor mortgage rules to help enable smaller banks to facilitate more affordable lending.
• Directing federal banking regulators to revise supervisory guidance to focus on prudent underwriting, rather than overly technical process-oriented approaches to lending, and to support construction lending by community banks.
• Directing the CFPB to modernize Home Mortgage Disclosure Act reporting requirements to reduce compliance burdens and protect borrower privacy.
• Directing federal banking regulators to engage in responsible, safe, and efficient reforms to capital and liquidity rules to remove undue burdens on lending, such as tailoring risk weights to the material credit risk of the exposure.
• Directing the FHFA to expand access to longer-dated Federal Home Loan Bank advances tied to residential mortgage assets, and creating targeted FHLB liquidity programs for entry-level housing, owner-occupied purchase loans, and small residential builders.
  

Many of these changes, if finalized, will be a big positive for the mortgage industry and are long-overdue, but other represent more election year politics than substance in terms of housing affordability. 
In January, President Trump signed an Executive Order to prevent large institutional investors from buying single-family homes that could otherwise be purchased by families, and called on Congress to codify these policies. 

This proposal is profoundly misguided, but has great political appeal to struggling families. The Senate since passed the 21st Century ROAD to Housing Act, 89-10, with only nine Republicans and one Democrat voting no. 

Like many progressive initiatives, the bill pretends to help address affordability, but in fact will result in less affordable housing. Just look at the supply constrained markets in states like New York and California.

"Republicans want to show voters they're doing something to ease housing costs," the Wall Street Journal noted in an editorial. "The result, alas, is a pork-filled bill hitting the Senate floor this week that is big win for Massachusetts Sen. Elizabeth Warren and the political left."

Large institutional investors (including private equity) own a relatively small share of single-family rental homes nationwide, estimated at roughly 3% to 4%, rather than the high percentages often cited, according to Brookings and the Urban Institute.  Rather than attacking investment in new rental units, Congress should be encouraging more.