Dec 13, 20222 min read

Fannie, Freddie OK Fla.’s Ins. Rating Proposal

courtesy of Bella Casa Real Estate

Fannie, Freddie OK Fla.’s Ins. Rating Proposal

By Kerry Smith

In July, insurance-company rater Demotech threatened the existence of many Fla. insurers. But in a rare bit of industry good news, Fla.’s back-up proposal was approved.

WASHINGTON – Insurance companies rely on positive ratings to survive, and in July, Demotech – an insurance firm rating company – suggested it was going to lower the grades for a number of state-based insurers.

The problem: Federal companies that buy mortgages from local lenders – The Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) – mandate high ratings if homebuyers and owners want their mortgage lenders to accept their insurance. A downgrade could have impacted not only homebuyers struggling to find coverage but many current Florida homeowners with a mortgage.

The issue is complicated, but Florida, in conjunction with the Florida Office of Insurance Regulation’s (OIR) working with state-backed Citizens Property Insurance Corp., created the “Temporary Market Stabilization Arrangement.”

The crux of the plan involved more state-backed reinsurance, which is essentially an insurance policy for insurance companies.

However, OIR needed Fannie and Freddie to approve its novel plan and confirm that they’d continue accepting insurance policies from the at-risk Florida insurers.

That leads to the good news: Fannie and Freddie both approved Florida’s backup plan this week in a Fannie Mae Lender Letter and Freddie Mac bulletin.

The temporary approval lasts until June 1, 2023, and states that servicers may accept – on a provisional basis – a property insurance policy written by an insurer participating in the temporary market stabilization arrangement.

“The temporary market stabilization arrangement is an innovative solution to address immediate consumer needs,” says Insurance Commissioner David Altmaier. “As we continue to pursue solutions which provide stability to our market, OIR remains committed to ensuring Floridians have access to coverage.”

Additional information on Florida’s temporary market stabilization arrangement is available on OIR’s website.

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