Borrowers who opt for higher homeowners insurance deductibles or are forced into them by shell-shocked insurance carriers soon will qualify once again for lower-rate conventional mortgages.

In July, Freddie Mac, a major supplier of funds for home loans, will realign its underwriting rules to match current insurance industry practice by increasing the maximum allowable deductible from 2 percent to 5 percent for fire, water and wind damage coverage for one-to-four-unit properties, condominiums and planned unit developments.

The change, company officials said last week at the Mortgage Bankers Association's National Secondary Market Conference in Chicago, is in response to lenders' requests to help borrowers cope with the double whammy of higher deductibles in particular and higher insurance costs in general.

Lenders use Freddie Mac and other secondary mortgage outlets to replenish their supplies of cash for mortgages. The company and others, including Fannie Mae, buy loans from primary lenders, package them into securities and sell them to investors from throughout the world.

Not every lender sells its loans. But because most do, and Freddie Mac and Fannie Mac are major buyers, the rules set down by the two government sponsored enterprises are followed by practically every entity which originates mortgages under the federally mandated ceiling of $417,000.

Fannie and Freddie operate in what's known as the "conventional" mortgage market, where rates tend to be 0.25-0.50 percent lower than other loans.

As a result of the last two years of severe hurricanes along the Gulf Coast and Florida, most insurers have raised their minium deductible to 5 percent, an automatic "disqualifier" under Freddie Mac's current guidelines, which limits the deductible to percent.

Borrowers have always had the option of choosing a higher deductible to save money, but the mandatory increase instituted by some insurance carriers has set a new floor beyond what Freddie Mac currently finds acceptable. Consequently, loans on many coastal properties were unsaleable, at least to Freddie Mac.

By acknowledging the change in insurance company practices, Freddie Mac is making sure borrowers have access to both lower rates and lower insurance premiums, company officials said.

The current rules "defeat the purpose" of higher deductibles, said James Cotton, vice president of mortgage sourcing. "Anyone who tries to take advantage of lower insurance rates pays for it in a higher mortgage rate."

Based on a report from the state of Florida prior to Hurricane Katrina, the annual premium savings from one major carrier by going from a 2 percent to 5 percent deductible on a $150,000 house varies by jurisdiction.

In Miami, the savings was $394. It was just $48 in Jacksonville and $110 in Orlando. But in the more hurricane-prone cities of Pensacola and Tampa, the savings was $248 and $218, respectively.

The change is "especially important" in the condominium market, Cotton said, because the choice of a higher deductible is often up to the condo owners association, not individual owners.

Published: May 17, 2006

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When Lew Sichelman first started writing about housing in 1969, he was the youngest real estate writer in the country. Now, 37 years later, he's one of the oldest -- and most decorated. He has been rated the top housing columnist in the country by the National Association of Realtors as well as by his peers in the National Association of Real Estate Editors. Indeed, NAREE has recognized his work on numerous occasions. One year - due to his advancing age, he can't recall which one - he earned top honors in the annual NAREE Journalism Contest in three out of the four major writing categories. It was the first time one writer has won so many NAREE awards in a single year. Known for his ability to make even the most difficult topics understandable, Sichelman also has been honored by the National Association of Home Builders and the Mortgage Bankers Association. He began providing in-depth coverage of and consumer-oriented information about housing and housing finance at the Washington Daily News, where he was real estate editor. He held that same position for nine more years at the Washington Star, which purchased the News in 1972. The Star, a so-called "writer's newspaper" which also had the misfortune of being an evening paper, was put out of its misery in 1981, and Sichelman, who had begun self-syndicating his column in 1978, decided to become a full-time columnist. Today, his column, "The Housing Scene," is distributed by United Media to newspapers throughout the country. He also is on the staff of National Mortgage News, an independent newspaper which is considered the bible of the mortgage business. And he writes for numerous other publications, including MarketWatch.com, where he answers readers questions once a week, Sports Illustrated (don't ask), RealtyTimes.com, BigBuilder and others. Sichelman is married, the father of five and grandfather of eleven.