Freddie Mac and Quake Insurance

In response to Jan Hickenbottom’s April 16 “Condo Q & A” column regarding earthquake insurance for certain condominium associations and Freddie Mac, we appreciate the opportunity to clarify some of the impressions left to the reader--and more importantly, to the condominium homeowner.

The column stated that “The impact on low- and moderate-income home buyers could be disastrous. . . .”

The Freddie Mac insurance requirement is for selected condominiums--not low- and moderate- income loans. The income distribution of condominium owners in California is virtually identical to the income distribution of single-family, detached homeowners.

The column stated, “This new Freddie Mac requirement will probably have a chilling effect on California mortgage lending. . . .”

Freddie Mac-financed California condos account for about 2 1/2% of California loan originations. As many as 68% of condos currently have quake insurance. Of those that don’t, some may not be required to get it. The impact on the market overall will be minimal.

Some additional points:

A reality in condominium lending is that individual condo owners obtain loans from a variety of lenders--each of whom want to satisfy themselves that their collateral is adequately protected. Lenders, therefore, routinely require wind and fire protection--and flood insurance--in areas that are subject to those disasters. Earthquakes are a risk we believe severe enough to merit insurance protection.

Finally, our decision to require earthquake insurance on certain condominiums extends beyond the fundamental responsibility to protect our investments. The policy provides important benefits to all parties concerned. Our policy demonstrates our commitment to affordable housing. We want to put people in homes they can afford and they can keep.

JOHN GIBBONS, Senior vice president and assistant to the chairman, Freddie Mac