Lender Changes to Residential Roofs: Replacement Costs vs. Actual Cash Value

As of March 18, 2026, federally backed lenders Fannie Mae and Freddie Mac will now accept actual cash value (ACV) coverage on roofs for single-family homes and condos. Can we get an AMEN?! 

According to Munich Re, 50 to 80 percent of claims filed are thunderstorm-related and cost upward of $10 billion a year. Uninformed homeowners cling to the idea that saying ,“I have a 20-year roof,” means their roof should last 20+ years, but that’s simply not the case. In fact, a “20-year roof” refers to the manufacturer's warranty against shingle defects, not the material's projected lifespan. Roofs are exposed to the elements (sun, wind, ice, snow, hail, birds, and fallen debris) and in just 10 short years become less flexible and more susceptible to even minor damage as the materials begin to degrade.

For many years, if not decades, insurers had been on the hook for total replacement cost valuation for roofs on any acceptable new business, even if that roof was approaching or at the end of its effective life. A homeowner could obtain a new policy at any time, suffer a hail loss days or weeks later, and receive full replacement cost on a 20-year-old roof. The following year, when the claims-free discount was removed and yet another rate increase was imposed, the policyholder could shop for a lower premium, leaving their prior insurer holding the bill for the $10,000+ roof replacement with only $2,000 paid in premium.

Insurers were struggling to keep up with high-dollar catastrophe losses relative to the premiums collected; they had to do something. So, in light of being unable to drastically raise premiums to match wind and hail risk, they filed for changes to underwriting and coverage. Some companies stopped accepting new coverage if a roof was more than 10 to 15 years old. Others added separate wind and hail deductibles that were high enough to absorb approximately half of the loss. Still others applied depreciation schedules that reduced the payment for roof damage by a greater percentage year over year. And some insurers initiated all of the above.

The problem? Most mortgage lenders require replacement cost valuation on the home, including the roof, and rarely accept a deductible over $5,000; $10,000 if the homeowner and their insurance agent beg. Homeowners were struggling with unaffordable premiums and deductibles on top of depreciation schedules that their mortgage lenders would not accept. Obtaining replacement cost coverage on residential roofs was becoming difficult, if not impossible. New homeownership was becoming difficult when faced with policy terms that lenders simply wouldn’t accept.  

Parametric insurance arose as one solution. Parametric coverage is a stand-alone policy of a predetermined payout for a specific type of loss (e.g., hail larger than 1 inch or high winds sustained for specified amount of time) that would help offset the high deductible expense. But again, that’s just more that’s getting factored into escrow accounts, making continued homeownership difficult. 

In response to significant industry persuasion, in March 2026, Fannie Mae had this to say: 

• We recognize that in certain areas, rising premiums and limited insurance availability are creating challenges for borrowers and homeowners’ associations.

• We are retiring the requirements related to documenting the replacement cost value to verify the property insurance policy coverage amount contained in Determining the Required Coverage Amount in Selling Guide B7-3-02, Property Insurance Requirements for One-to Four-Unit Properties in their entirety.

• We are also retiring the requirement to insure roofs on a replacement cost basis, as described in Coverage Requirements in Selling Guide, B7-3-02, Property Insurance Requirements for One- to Four-Unit Properties.

These two property insurance changes allow roofs to be insured without a replacement cost requirement, and also allow personal property (i.e., contents) and non-building structures (e.g., fences, mailboxes, pools, etc.) to be insured to actual cash value. That said, deductible requirements for one- to four-unit residential properties cannot be greater than $2,500 or 5 percent of the property insurance coverage, whichever is higher.

Freddie Mac, a government-sponsored enterprise (GSE) like Fannie Mae, released matching updates to their lending programs as well. 

Will this be a welcomed change for the insurance industry when it comes to procuring coverage options for their clients? Or will it allow insurance producers to take the easy road and stop at ACV options rather than finding replacement cost coverage options? 

The role of the insurance professional is not to default to the easier option. The best path forward is to allow clients to weigh property insurance coverage options against their budgetary constraints. Ultimately, consumers may be willing to pay higher premiums for better coverage. Insurance professionals should be well-versed in knowing how to offer these options in language their clients can understand. The difference between guidance and convenience is subtle in the moment, but significant when a claim occurs.