A master policy deductible over $50,000 per unit now makes the units unfinanceable
A master policy deductible over $50,000 per unit now makes the units unfinanceable
2026-09-15 · North Dakota · Compliance
A North Dakota condominium association that responded to hail losses by taking a large per-unit deductible has, since July 1, 2026, been making its own owners' units harder to sell.1
The cap
Fannie Mae's Lender Letter LL-2026-03:
“With this Lender Letter, the maximum allowable per unit deductible for all required property insurance perils covered by a master property insurance policy is $50,000 per unit. … Effective: Lenders are encouraged to implement these changes immediately but must do so for all loans with application dates on or after July 1, 2026.”
Freddie Mac's Bulletin 2026-C retired its old five percent per-unit formula and replaced it with the same figure: “If the master property insurance policy includes a per unit deductible, the deductible now may not exceed $50,000 per unit.” It also kept a separate per-occurrence limit: the deductible for required perils “may not exceed 5% of the limit maintained for building(s) coverage per occurrence.”2
The consequence for every mortgaged owner
The cap is only half of it. Fannie Mae: “When the master property insurance policy has a per unit deductible, the borrower must have a unit owners property insurance policy.”
Freddie Mac spells out the amount: the HO-6 limit “must be at least equal to the greater of: The amount sufficient to repair the Unit to at least its condition prior to the loss; or The amount of the per unit deductible, if the master property insurance policy includes a per unit deductible” — and the HO-6 deductible “cannot exceed the greater of 5% of the coverage limit or $2,500.”
So a per-unit deductible of $25,000 obliges every financed owner to carry HO-6 coverage of at least $25,000. The deductible does not disappear. It moves onto the owners' policies.
Four other master policy rules changed at the same time
Coverage sufficiency. “The master property insurance policy coverage amount must equal at least 100% of the estimated replacement cost value of the project improvements, including common elements and residential structures.”
Roofs are carved out of replacement cost. Fannie Mae: “The master property insurance policy must provide coverage on a replacement cost basis, with the exception of roofs. NOTE: Roofs must be insured, but do not have to be insured on a replacement cost basis.” Freddie Mac: “The requirement to ensure roofs on a replacement cost basis has been retired.”
That is a concession to the carriers and a problem for North Dakota. Roofs are what hail destroys. A policy that insures them on an actual cash value basis satisfies the secondary market and leaves the association funding depreciation out of reserves.
Inflation guard is gone. Both enterprises retired the requirement entirely — Freddie Mac's words: “The inflation guard requirement has been retired in its entirety.” Nothing now obliges the policy limit to keep pace with construction cost. That is now the board's job.
Named storms are a required peril. Freddie Mac: “Named storms designated by the U.S. National Weather Service or the National Oceanic and Atmospheric Administration by a name or number are a required component of windstorm coverage.”
Freddie Mac also permits a workaround: “PUDs, ground lease communities, condominium HOAs and Cooperative Corporations may purchase a deductible buy-back insurance policy to meet our deductible requirements, provided the policy meets all other applicable property insurance requirements in Guide Chapter 4703.”
Why this hits North Dakota harder than most states
This is a severe convective storm state. North Dakota's own Insurance Department reports $327,614,550 in home multi-peril premium earned against $161,632,859 in claims incurred for calendar year 2024 — roughly a fifty percent loss ratio, with one domiciled writer running near ninety.
The market's answer to hail has been higher deductibles. The secondary market has now put a ceiling on that answer for condominiums, while simultaneously letting roofs off replacement cost. A North Dakota board carrying a large per-unit wind and hail deductible is holding a structure that no longer works.
And the state's own regulator has said nothing about it. The North Dakota Insurance Department issued four bulletins in 2025 and 2026 and none of them touches property, deductibles or condominium master policies. Our North Dakota insurance requirements page covers the programme itself.
What a board faces before its next renewal
Find the per-unit deductible on the declarations page. If it is above $50,000, the units in your project are unfinanceable on conventional terms from an application dated July 1, 2026 onward. That is a problem to solve at renewal, not after a sale falls through.
If there is any per-unit deductible, tell your owners they need an HO-6 at least that size. Mortgaged owners are required to carry it. Uninsured owners in the gap are the ones who cannot pay a loss assessment.
Ask whether roofs are on replacement cost or actual cash value, and price the difference. If actual cash value, the depreciation is a reserve item. Our North Dakota reserve studies page covers where it belongs.
Replace inflation guard with an annual valuation. Nobody requires it now. The 100 percent replacement cost requirement has not gone away, and a policy limit set three years ago is unlikely to meet it.
Price a deductible buy-back. It is expressly permitted as a route to compliance, and it may be cheaper than restructuring the whole programme.
One more timing trap
Freddie Mac's own reminder: “If a Seller has an unexpired project review completed prior to the effective dates listed above, the Seller must still confirm that the project complies with these new Guide requirements for applications received on or after the effective date of such requirements.” An existing project approval does not shelter a policy that fails the new rule.
What to watch next
Watch the autumn renewal season for how North Dakota carriers respond to a hard cap in a hail market — the plausible outcomes are higher premium, a per-occurrence structure instead of per-unit, or buy-back policies becoming standard. Watch, too, whether the Insurance Department issues anything at all on the subject, which it has not done in two years.
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