When Fannie Mae and Freddie Mac updated their requirements for property liability coverage, they likely didn’t anticipate the ripple effects now threatening the viability of multifamily real estate deals. But according to Danielle Lombardo (pictured), vice chair at Howden US, the growing disconnect between lender expectations and insurance market realities is forcing some properties toward foreclosure, while giving larger landlords a competitive edge.
“Fannie Mae and Freddie Mac are requiring coverages that are consistently either being excluded or sublimated in the casualty market,” Lombardo said. The gap is widest in areas where insurers are seeing soaring losses – sexual abuse and molestation, firearm-related incidents, animal attacks, and habitability claims.
“It’s not about whether landlords are negligent,” she said. “These claims are being paid at very large amounts regardless of liability, and insurers are responding by excluding the coverage or capping it at very low sublimits.”
The issue, she added, isn’t unique to insurance. “This is about tort reform. The core problem is the frequency and severity of claims.”
These rising exclusions are especially hard on small to mid-size multifamily owners. Without the leverage to negotiate broader coverage terms, they’re increasingly required by lenders to place high-cost escrows – often hundreds of thousands of dollars per excluded risk – just to meet minimum lending standards.
“The disparity becomes stark,” Lombardo said. “A smaller owner could be facing over a million dollars in combined escrows and insurance premium for a single property. For a larger landlord with more robust coverage, it might just be the premium.”
So how are owners navigating the disconnect? One tool is the lender waiver. “It’s harder now, but if coverage is cost-prohibitive or unavailable, you can sometimes get the lender to waive that requirement,” Lombardo said.
But securing a waiver requires more than pleading cost. “Lenders want to see the full story – your loss control measures, vendor contracts, indemnification provisions, and steps taken to reduce risk,” she said. “And you need to talk to someone at the lender who understands insurance and can weigh business practicality against the technical requirement.”
Brokers and insurers, she said, must shift their positioning from transactional intermediaries to strategic enablers. “Every stakeholder – landlord, lender, tenant, broker, insurer, the state – they all view risk through their own narrow lens,” Lombardo said. “But the impact is systemic. If lenders halt deals over insurance gaps, it affects affordable housing, it delays repairs, and ultimately hits tenants.”
She sees an opportunity for brokers to help bridge that divide. “We need to use data, storytelling, and practical risk management to get everyone to the table. That’s how you keep deals alive.”
But without broader structural reform, she warned, these pressures will intensify. “This isn’t just about premiums. It’s about claim trends. If those aren’t addressed, insurance markets will continue to withdraw, and the problem won’t fix itself.”
The insurance market isn’t broken – it’s reacting to rising claims in a system that continues to reward litigation over resolution. Lombardo emphasized that without a shared commitment to addressing root causes, from tort reform to practical underwriting, the viability of multifamily deals will keep eroding.
“Unless stakeholders come together to reframe risk and rethink liability, the deals that build and preserve housing will keep falling through,” she said.
In a market increasingly defined by exclusion, it may take collaboration, not coverage, to keep transactions alive.
