Freddie Mac Insurance Requirements: What Your Broker Doesn't Know

Most borrowers—and many brokers—don't understand agency insurance requirements until they receive a deficiency notice 72 hours before closing. By then, your options are limited and expensive.

This guide covers exactly what Freddie Mac requires, where deals typically fail, and how to structure your insurance before you even submit the application.

Why Agency Insurance Is Different

Freddie Mac isn't a bank. They're buying loans that will be securitized and sold to investors. Those investors demand standardized, predictable risk profiles. Insurance is a key component of that risk management.

When a bank makes a portfolio loan, they can make exceptions. When Freddie buys a loan, they follow the Guide—period. Your insurance either complies or it doesn't.

The Core Insurance Requirements

1. Property Insurance (Hazard/Fire)

Minimum Coverage: 100% of the insurable replacement cost of improvements, OR the unpaid principal balance of the loan—whichever is greater.

• Replacement cost coverage (not Actual Cash Value)
• No coinsurance penalty clause, OR 90%+ coinsurance with Agreed Amount endorsement
• Named peril or special form (all-risk) coverage
• Deductible cannot exceed 5% of coverage amount or $100,000—whichever is less

2. Liability Insurance

Minimum Coverage: $1,000,000 per occurrence for Commercial General Liability (CGL).

• Lender named as Additional Insured (not just Certificate Holder)
• Coverage for premises and operations
• 30-day notice of cancellation to lender

3. Flood Insurance (If Applicable)

When Required: Any building in a Special Flood Hazard Area (SFHA) as designated by FEMA—Zones A or V.

Minimum Coverage: Lesser of maximum NFIP limit ($500,000 per building) OR 100% replacement cost OR unpaid principal balance.

4. Earthquake Insurance (If Applicable)

When Required: Properties in Seismic Zone 3 or 4 (most of California, parts of Pacific Northwest, Alaska, Hawaii).

5. Business Income (Loss of Rents)

Minimum Coverage: Actual Loss Sustained (ALS) for 12 months.

This pays your mortgage and expenses if the building is uninhabitable due to fire or flood.The Trap: Many policies cap this at specific dollar amounts (e.g., $100,000) rather than "Actual Loss Sustained" for a full year. Freddie Mac requires the 12-month duration requirement specifically.

6. Ordinance or Law Coverage

When Required: For any non-conforming property (e.g., older buildings that couldn't be rebuilt to the same density today).

If your building burns down 50%, local zoning might require you to tear down the other 50% and rebuild to modern code. Standard fire insurance pays for the burn. Ordinance or Law pays for the demolition of the undamaged portion and the cost of code upgrades. Without this, you have a half-burned building and no money to finish the job.

7. Terrorism Insurance (TRIA)

When Required: Often mandatory, or required if the "premium is reasonable" under the Terrorism Risk Insurance Act.

8. Boiler & Machinery / Equipment Breakdown

When Required: Properties with central heating, air conditioning, or other mechanical systems.

The Mortgagee Clause: Where Deals Die

Every policy must name the lender with a Standard Mortgagee Clause. This clause guarantees that:

• The lender's interest is protected even if the borrower violates policy terms
• The lender receives 30 days' notice before cancellation
• Insurance proceeds are paid to the lender for loss settlement

Evidence of Insurance: What to Submit

At Application

• Current declarations page (showing coverages, limits, deductibles)
• Insurance binder if policy is being rewritten
• Flood zone determination letter (FEMA Form 086)

At Closing

• ACORD 28 (Evidence of Commercial Property Insurance)
• ACORD 25 (Certificate of Liability Insurance)
• Mortgagee endorsement with exact lender language
• Proof of paid premium (paid receipt or finance agreement)

Common Insurance Failures

1. Underinsured Properties

The appraisal shows replacement cost of $3.2M. Your policy shows $2.1M coverage. You're underinsured. The lender will require you to increase coverage before closing.

2. Wrong Named Insured

Title is held by "123 Main Street LLC." Insurance policy shows "John Smith" as named insured. This mismatch must be corrected.

3. Gaps in Coverage

Policy expires before closing, or renews with different terms after closing. Either creates a gap the lender won't accept.

4. Deductible Too High

You chose a $250,000 deductible to reduce premium. Freddie Mac caps deductibles at $100,000 or 5% of coverage.

5. The "Vacancy Clause" Exclusion

Standard policies often exclude coverage for vandalism or sprinkler leakage if a unit/building is vacant for >60 days. If you are buying a distressed asset with low occupancy, you need a "Vacancy Permit" endorsement. Otherwise, your "full coverage" policy is worthless the moment a squatter starts a fire.

Insurance Timeline for Freddie Mac Deals

Working with Your Insurance Agent

1. Send the lender's insurance requirements document to your agent at application—not when they ask for it.
2. Request the mortgagee endorsement language from the lender immediately.
3. Ask for a compliance review comparing your current policy to lender requirements.
4. Build in 2 weeks of buffer for endorsements and corrections.
5. Get the ACORD certificates early and send them to the lender for review before the final week.

The Bottom Line

Freddie Mac insurance requirements aren't complicated, but they're specific. The difference between a smooth close and a delayed close is preparation:

• Get the lender's requirements at application
• Review your current coverage immediately
• Address deficiencies in weeks 1-2, not week 6
• Submit certificates early for pre-approval