The landscape of homeowner’s insurance has shifted dramatically with a new federal rule that transfers the financial burden of roof damage from insurers to property owners. This change, announced by the Federal Housing Finance Agency (FHFA) in March, allows Fannie Mae and Freddie Mac to accept insurance policies that provide only actual cash value (ACV) coverage for roofs, rather than the previously required full replacement cost coverage.
This policy shift means that property owners with mortgages backed by Fannie and Freddie can opt for cheaper insurance premiums, but at the risk of significant out-of-pocket expenses when disaster strikes. The new rule is not mandatory, but it presents a tempting cost-saving measure that could lead to substantial financial surprises down the line.
The Implications of the New ACV Coverage Rule
The new policy allows property owners to choose insurance that covers only the depreciated value of their roofs, rather than the full cost of replacement. While this option can reduce premiums by 10% to 20% it also means that in the event of storm damage, owners may receive much smaller compensation checks. This can result in substantial shortfalls that property owners must cover themselves.
For instance, Lindsay Frangie, a Georgia-based branch partner at Alcova Mortgage, warns that property owners who opt for ACV coverage may face shocking repair bills. ‘If the policyholder is not prepared and they get a hailstorm or tornado, they are going to be in for the surprise of their life when they get that bill from the roofer saying, “Hey, your insurance is only covering $9,000, you owe another $9,000,”’ Frangie told MarketWatch.
Government’s Perspective on the New Policy
Government officials have framed this policy change as a victory for property owners, arguing that it reduces the financial burden of insurance. FHFA director William J. Pulte stated, ‘Thanks to President Trump’s landslide victory, we are replacing a disruptive and expensive Biden insurance mandate with common-sense policies for today’s market. Lower insurance costs and mortgage rates shrink the monthly payment of a new mortgage, giving new homebuyers confidence that they can afford the American dream.’
Navigating the Fine Print of Insurance Policies
With the new policy in place, property owners must scrutinize their insurance policies more carefully than ever. Amy Bach, director of consumer advocacy group United Policyholders, cautions that insurance agents may downplay the details to make a sale. ‘The amount of commission [agents] would earn by recommending more coverage is not worth it to them against the risk of them losing you as a customer because of the price point,’ Bach said.
However, some insurance companies offer nuanced policies that could benefit property owners. For example, Insurify advises that some insurers provide a guaranteed replacement cost coverage endorsement for roof replacement. This means that if the roof is damaged by a covered loss, the insurer will pay the full replacement cost without subtracting depreciation. It’s crucial for property owners to review their declarations page and clarify with their insurance agent to understand which parts of their policy include depreciation.
The Rise of Claim Denials
The Wall Street Journal reported that the five biggest home insurers didn’t pay out on more than 44% of claims resolved last year, up from 36% a decade ago. This trend highlights the increasing challenges property owners face when filing claims. State Farm, for instance, is being sued by hundreds of Oklahoma residents who allege that the company uses vague definitions in its coverage policies to mislead policyholders.
Jeff Marr, the lawyer for the plaintiffs, revealed that earlier State Farm settlements had exposed the company’s ‘secret playbook’ to replace fewer roofs. ‘They have weaponized their claims department,’ Marr said, underscoring the need for property owners to be vigilant and well-informed about their insurance policies.
The Broader Impact on Housing Affordability
Housing affordability is a pressing political issue, and the new insurance policy adds another layer of complexity. Billionaire entrepreneur Mark Cuban highlighted the growing concern, posting on Bluesky in 2026: ‘Home insurance in areas hit by repetitive disasters is going to be the number one housing affordability issue over the next 4 years. And possibly going into the midterms. More so than interest rates. Florida in particular is going to have huge problems.’
SES Risk Solutions, an insurance provider for financial institutions, noted that insurance is now influencing real estate decisions in ways traditionally reserved for mortgage rates. Buyers are reconsidering purchases after reviewing insurance quotes, while investors are reevaluating yields based on higher operating expenses. Property owners are also delaying moves or refinancing decisions due to concerns about future premium volatility.
For investors with multiple properties, managing renewals, carrier appetite changes, and inconsistent coverage terms across a portfolio introduces both operational and financial risks. This environment underscores the importance of insurance structures designed specifically for real estate portfolios rather than one policy at a time.
In the quest to lower expenses, there is a temptation to opt for lower insurance costs to boost cash flow. However, this strategy is fraught with risk. Consulting with a broker, particularly if you have a larger portfolio, could be a savvy move to find property and liability insurance customized to your needs.
Roofs are a particular concern for insurers, as they are often the main casualty in extreme weather. Al Brooks, vice chair of commercial banking at J.P. Morgan, emphasized the unprecedented nature of recent disasters and the losses suffered by the insurance industry. Brooks recommends ensuring that repairs are up to date and advises against temporary fixes like tarps, as many insurance companies use drones to monitor properties.
