Realtors Seek State Action to Block Freddie Mac Policy : Insurance: Group calls the mortgage purchaser’s new quake insurance requirement on condos discriminatory.

Citing the potential for “geographic redlining” of Californians, the California Assn. of Realtors on Wednesday called on state Atty. Gen. Dan Lungren to block a new policy by the nation’s second-largest mortgage purchaser to require earthquake insurance on condo complexes in seismically risky parts of the state.

The realtors group, which has 104,000 California members, complained in a letter to Lungren that the move by the Federal Home Loan Mortgage Corp., known as Freddie Mac, “discriminates against all Californians and particularly creates disadvantages for thousands of low- and moderate-income condominium owners and first-time home buyers.”

Freddie Mac, which holds one out of six U.S. mortgages, called the association’s criticisms “unfounded” and said it has no plans to reconsider the policy, which takes effect July 1.

A spokeswoman for Lungren said the attorney general received the association’s letter but would have no comment until his office had analyzed the situation.

Facing millions of dollars of losses from condo mortgage defaults as a result of the Northridge earthquake, Freddie Mac adopted the policy as a way to cut its exposure to future earthquake risk.

The agency used geological studies by an engineering firm to classify all California ZIP codes as either high-, moderate- or low-risk. Generally speaking, quake insurance will be required on all condo complexes in high-risk zones and on certain kinds of structures in moderate-risk zones. It won’t be required in low-risk zones.

Complicating the problem for homeowners is a virtual moratorium on sales of new earthquake insurance policies that was imposed by most California insurers after the Jan. 17, 1994, earthquake.

Condo owners in complexes where earthquake coverage is required but not available may have difficulty selling their homes because Freddie Mac will refuse to purchase the mortgages on them. The problem could become more severe if other major mortgage buyers followed suit.

The Federal National Mortgage Assn. (Fannie Mae), the industry leader with about one in five U.S. mortgages, so far has declined to copy Freddie Mac.

Joel Singer, executive vice president of the realtors group, said the Freddie Mac policy is “unscientific” and discriminatory because it focuses only on California, while there is equal earthquake risk in other states.

He said the policy is especially harsh on lower-income people and first-time home buyers because they are particularly likely to buy condominiums.