It took greater than 4 months, however Fannie Mae and Freddie Mac have agreed to settle for an revolutionary however short-term resolution to Florida’s property insurer ranking predicament.
The mortgage-buying giants on Wednesday despatched letters to main mortgage lenders, notifying them that they’d studied and authorised a Florida plan to make the most of the state-created Citizens Property Insurance Corp. as a kind of reinsurance backstop for struggling insurers, at the very least by way of May 31, 2023.
“In the event certain insurers doing business in Florida suffer a financial rating downgrade that would place them below our current rating requirement for property insurers … the insurer may qualify for participation in the arrangement,” officers with the Federal National Mortgage Association, generally known as Fannie Mae, wrote within the Dec. 7 bulletin.
The Federal Home Loan Mortgage Corp., or Freddie Mac, posted comparable steerage on its web site Wednesday.
Florida’s Office of Insurance Regulation devised the Temporary Market Stabilization Arrangement (TMSA) in late July, after the Demotech monetary ranking agency introduced it was on the verge of downgrading greater than a dozen carriers. Fannie Mae and Freddie Mac’s guidelines require that insurers for owners with federally backed mortgages have glowing stability rankings.
Demotech is the chief ranking agency for Florida and charges some 30 Florida insurers. Its downgrades threatened to disrupt the owners market and pressure 1000’s of homeowners to rapidly discover new insurance coverage.
The stabilization association takes benefit of an exception to Fannie Mae and Freddie Mac’s guidelines, through the use of Citizens, by way of an endorsement, to cowl excellent claims that might not be paid by the Florida Insurance Guaranty Association in case the insurer turns into bancrupt and is put into receivership. The association is designed to be obtainable solely till this summer season.
“This unprecedented solution allows insurers to remain viable and ensures Floridians can maintain coverage in the voluntary market,” OIR mentioned in a press release.
At the time, some within the trade welcomed the stop-gap measure, whereas others doubted that Fannie Mae and Freddie Mac would go for it.
But after cautious overview, the mortgage shopping for firms mentioned the stabilization plan is suitable, however just for present or renewing insurance policies and provided that the property meets all different federal necessities, together with securing flood insurance coverage, if wanted.
The OIR didn’t point out what number of Florida insurers have signed on to the TMSA plan, however it seems that United Property & Casualty Insurance Co. stands out as the just one, up to now. UPC will not be bancrupt however is shutting down and is in the middle of an orderly run-off.
It was unclear if Fannie Mae and Freddie Mac will approve UPC insurance policies whereas owners seek for new protection. The lender bulletins famous that Fannie and Freddie won’t settle for property insurance coverage insurance policies from TMSA individuals if the insurance coverage was in place when the mortgage was issued.
“This Lender Letter does not authorize lenders to sell a loan to us if the property insurance is provided by a TMSA-participating insurer as of the note date,” Fannie Mae’s bulletin reads. “Property insurance provided by a TMSA-participating insurer does not meet the insurance requirements applicable upon sale of a loan to Fannie Mae.”
The mortgage firms additionally cautioned that regulators and insurers shouldn’t get too enthusiastic about the opportunity of different revolutionary concepts.
“The issuance of this Lender Letter should not be viewed in any sense as precedential,” Fannie Mae wrote. “We are responding to unique and challenging circumstances prevailing in Florida, and there is no assurance that we will respond similarly in other contexts, whether in Florida or elsewhere.”
After the TMSA program expires in May, it’s nonetheless unsure how the insurer rankings conundrum can be addressed. Florida’s Department of Financial Services has hired a consulting firm to study alternatives to Demotech, together with a state-run ranking company.
And the insurance coverage trade is hoping that Florida lawmakers at a particular legislative session subsequent week will move litigation reform and present low-cost reinsurance, which may mitigate losses and enhance rankings for some susceptible carriers.
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