Is Another Housing Crisis Heading Straight For Us?

Soaring homeowner insurance premiums are beginning to strike at the heart of the housing finance market and no one has any idea on how to fix it.

The Wall Street Journal reported on March 17 that mortgage finance and insurance giant Fannie Mae maintains a secret mortgage blacklist.

“The blacklist is maintained by Fannie Mae and includes condo associations that the mortgage finance giant thinks don’t have adequate property insurance or need to make critical building repairs. Being on the list can make it harder for potential buyers to get a mortgage.

According to lenders and real-estate agents, Fannie Mae greatly expanded the list after the Surfside condo collapse in Florida in 2021 killed 98 people. Compounding the problem, a nationwide insurance crisis is making it more expensive for condo associations to afford adequate coverage.”

According to a January 2025 report from the U.S. Treasury Department, from 2018 to 2022

“Average premiums per policy nationwide increased 8.7 percent faster than inflation during this period. Some consumers faced substantially larger premium increases than the national average. Consumers in the top 20 percent of ZIP Codes (which are defined by the top and bottom quintiles based on expected annual losses to buildings from climate-related risks) saw premiums per policy rise at least 14.7 percent faster than inflation.”

The Treasury report used the CPI Urban Consumer index, which rose approximately 20% during that time period. This means that the national average homeowners insurance premium rose nearly 22% and in the top 20 percent of ZIP Codes, approximately 23% during that time period. While the data was not available to Treasury at the time of the report, it can be safely assumed that homeowner insurance premiums have continued to increase substantially in 2023 and 2024. Additionally, these figures do not include homeowners insurance where insurance carriers would not renew coverage.

When a homeowner’s insurance policy lapses or if coverage is not renewed by the insurance carrier, the company who services the loan for FHLMC, FNMA or GNMA is required to “Force Place” an insurance policy where FHLMC, FNMA or GNMA are the beneficiary, and the borrower is the obligor. Usually, these policies have significantly higher premiums and only protect the actual structure. Additionally, there have been numerous abuses with regard to Forced Place Insurance, some highlighted here by the National Consumer Law Center

“Servicers have an incentive to select a policy in the servicer’s best interest, not the homeowner’s best interest. For example, a servicer may choose an over-priced policy because that insurer offers financial incentives to the servicer, such as the insurer handling insurance monitoring of the servicer’s loans at a discount or no extra cost to the servicer. A servicer also might select a higher priced policy because it offers extra coverage or other services primarily benefiting the servicer.”

If you fail to pay for this policy, even if you are keeping up with your monthly principal and interest payments you can be considered in default and face foreclosure.

Also of concern is the $42 billion Home Equity Conversion Mortgages (HECM or reverse mortgages). Borrowers are required to keep their homeowners insurance current and if they don’t they can also face being forced placed with the risk of default and foreclosure. Since many of the borrowers live on a fixed income, soaring insurance premiums can put thousands of senior citizens at risk of losing their homes.

As previously mentioned, the Financial Insurance Office of the U.S. Treasury Department did a deep dive into this growing and grave issue and released their findings in January. The report highlighted all the problems noted above, concluding

“This Report highlights the ongoing challenges for some consumers seeking adequate and available homeowners insurance. Based on ZIP Code level data, this Report complements the important work of states and local communities. In particular, the analyses in this Report generally show that the cost of insurance for homeowners increased and the insurance availability declined from 2018 through 2022. The analyses also show that the cost of insurance was higher, and the availability of insurance was lower in areas with the highest expected annual losses to buildings from climate-related perils when compared with the areas with the lowest expected annual losses. Publicly available information suggests that these market patterns have continued into 2023 and 2024.”

The recommendations from the report were essentially focused on data sharing between Treasury, State Insurance Commissioners and large insurance carriers, concluding with this,

“State and federal regulators and policymakers should continue their efforts to improve public awareness about the importance of adequate homeowners insurance.”

What Treasury did there can be best summed up by the Steven Wright line, “I couldn’t repair your brakes, so I made your horn louder.”

Houston, we have a problem.