Condo Insurance Deductible

Fannie and Freddie have seen a trend lately among some condo associations around trying to save money on insurance policies by increasing deductibles. Unfortunately, the condo assoc/management companies are not holding to the established Fannie and Freddie requirements that deductibles not exceed 5% of the replacement/face value of the policies on a per unit basis resulting in them making the condominium non-warrantable.

 

We have previously petitioned Fannie Mae to accept a condominium with a deductible

amount that exceeded the 5% rule and they were not willing to grant a waiver. In

meetings with Fannie Mae this issue has been discussed at length and they have made it clear that

 

 

Detailed below is a fictional example:

 

62 unit condo project, say the master insurance is for $15,650,000 building coverage.

Lists deductible as $25k/unit.

The maximum deductible per unit then would be $15.65MM / 62 * .05 = $12,620.

This would be ineligible unless the deductible is reduced below $12,620.

 

In many cases, condo associations will not (or cannot quickly) change the policies,

these loans will be treated as non-warrantable.

 

Specific guideline to reference:

 

     Maximum Deductible Amounts

For policies covering the common elements in a PUD project and for policies

covering condo or co-op projects, the maximum deductible amount must be

no greater than 5% of the face amount of the policy.

 

For blanket insurance policies that cover both the individual units and the

common elements, the maximum deductible amount related to the individual

unit should be no greater than 5% of the replacement cost of the unit.

 

The same limitations can be found in Freddie Mac in chapter 8202.2 (via allregs link on Freddie Mac Guideline not hot linkable)