Federal Proposal to Stabilize Insurance Costs and Mortgage Approvals
Insurance costs have surged significantly, leading some economists to propose the establishment of a federal reinsurance entity to stabilize the market. This comes at a time when inflated insurance prices are impacting mortgage approvals, posing challenges for mortgage brokers and their clients.
Homeowners insurance premiums have skyrocketed by 64% since 2019, though the increase rate decelerated to 8.5% annually in 2025, according to data from Matic. These escalating costs have complicated mortgage qualifications. Matic's findings reveal that 64% of mortgage lenders frequently encounter issues related to home insurance.
The rising premiums are affecting borrowers' debt-to-income (DTI) ratios, leading to delayed closings or forcing potential homeowners to opt for less expensive properties. Lenders are withdrawing from one to two loans monthly due to DTI issues spurred by high insurance costs. In Florida, where insurance rates exceed the national average, these costs can notably raise a borrower's DTI, impacting loan approval.
Proposed Federal Reinsurer: "US Re"
The proposal for a federal reinsurer, named "US Re," focuses on offering reinsurance to insurers for covering catastrophic events. Reinsurance aids primary insurers in risk management, mitigating the impact of extensive claims from large disasters. By leveraging the federal government's borrowing capacity, the plan aims to offer reinsurance at more stable rates than the private sector, potentially easing pressures leading to high premiums and restrictive underwriting.
While acknowledging challenges in maintaining accurate risk pricing and political independence, the proposal takes cues from the National Flood Insurance Program (NFIP). Historically low premiums and catastrophic events have impacted NFIP's actuarial soundness and debt levels. "US Re" targets avoiding these issues through risk-based pricing principles.
Mortgage brokers are encouraged to address insurance discussions earlier in the preapproval process, especially in high-risk areas where coverage costs can significantly alter DTI calculations and affect loan eligibility. Understanding geographic vulnerabilities to rate hikes and varying loan program requirements can better equip brokers to assess borrower prospects and manage residential market risks effectively.
By highlighting the nexus between the insurance and mortgage markets, the proposal emphasizes the necessity of a resilient insurance framework to ensure mortgage market stability. Although political hurdles exist for implementing a federal reinsurer, the proposal aligns with current market dynamics. Industry professionals who integrate insurance considerations proactively may better navigate ongoing market shifts, optimizing results for both brokers and borrowers in a complex insurance landscape.