Changes in insurance rules from Fannie Mae and Freddie Mac are causing big headaches for owners of multifamily properties, especially smaller landlords. Danielle Lombardo, vice chair at Howden US, says new requirements for liability insurance don’t match what insurers are actually willing to provide. This mismatch is pushing some property deals toward foreclosure and giving bigger landlords an advantage.
Fannie Mae and Freddie Mac now want coverage for risks that insurance companies often exclude or limit. These include claims related to sexual abuse, firearm incidents, animal attacks, and habitability issues. Lombardo points out that insurers are paying large sums for such claims regardless of landlord fault, so they respond by cutting coverage or setting very low limits.
This problem is more than just insurance — it ties into bigger legal issues, like how often claims happen and how severe they are. Small and mid-sized property owners struggle the most because they lack bargaining power. They often have to put up expensive escrows, sometimes hundreds of thousands of dollars, to meet lenders’ insurance standards. Lombardo notes that for small owners, the combined cost of escrow and insurance premiums can reach over a million dollars for just one property. Meanwhile, bigger landlords might only pay the insurance premium.
Some owners try to work around this by asking lenders to waive certain coverage requirements if they’re too costly or unavailable. But getting a waiver requires showing lenders detailed proof of risk management, including loss control efforts and vendor agreements. It also helps to have conversations with lenders who understand insurance well enough to balance rules with real business needs.
There are some new insurance products offering separate coverage for tricky risks like sexual abuse, provided by companies such as Beazley and CFC. Still, these specialized policies can be quite expensive.
Lombardo believes brokers and insurers should act as problem solvers, not just middlemen. She stresses the importance of getting landlords, lenders, tenants, brokers, insurers, and state officials in the same room to share data and work on real solutions. Without a broader fix, such as legal reforms and better underwriting practices, these insurance issues will keep getting worse. This would slow down housing deals, hold up repairs, and ultimately hurt tenants.
In Lombardo’s view, the insurance market isn’t broken—it’s reacting to a system that favors litigation over settlement. If everyone involved doesn’t come together to rethink how risk and responsibility are handled, multifamily housing deals will continue falling apart. Making progress may take cooperation more than coverage. Without that, more deals could face foreclosure, and the cost of risk will keep climbing.