As insurance costs soar, economists are calling for a federal reinsurer. For mortgage brokers, the stakes couldn't be higher
You’ve probably felt it before you fully understood why. A purchase deal that pencils perfectly on rate and purchase price falls apart at the finish line because the borrower cannot find affordable homeowners insurance.
A preapproval that looked solid at the start of the transaction is suddenly underwater because the insurance quote came in $300 a month higher than estimated.
A first-time buyer in Florida or Colorado or Texas discovers that the monthly payment they have been planning around for six months bears no resemblance to what the actual PITI looks like once a real insurance quote is factored in.
This is not an insurance problem that occasionally brushes up against the mortgage business. It has become a mortgage problem that happens to originate in the insurance market – and a new proposal from the Brookings Institution suggests that without federal intervention, it is going to get meaningfully worse before it gets better.
The numbers mortgage brokers are living with
The scale of the insurance market disruption has been building for years, but the specific ways it is landing on mortgage brokers and their borrowers are worth stating plainly.
Home insurance premiums have risen 64% since 2019, according to data from insurance platform Matic. Even as the pace of increases slowed in 2025 – rising 8.5% year-over-year rather than the 18% seen in 2024 - premiums remain at record levels.
The average premium for a new policy reached approximately $1,950 by December 2025. In the five costliest states - Nebraska, Louisiana, Florida, Oklahoma, and Kansas – homeowners pay upwards of $4,400 a year on average, more than $2,000 above the national average.
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For mortgage brokers, those numbers translate into concrete pipeline consequences. According to Matic's survey data, 64% of mortgage lenders reported experiencing issues with home insurance either frequently or somewhat frequently.
Elevated insurance costs are directly impacting borrowers' debt-to-income ratios, delaying closings, and in some cases preventing borrowers from qualifying altogether. Thirty-seven percent of mortgage lenders reported clients who had to opt for a less expensive home because of insurance costs. Many loan officers report walking away from one to two loans per month specifically because of insurance-driven DTI problems.
The mechanics are straightforward and familiar to anyone who has underwritten PITI. Homeowners insurance is included in the front-end housing ratio. Under Fannie Mae guidelines, DU can approve borrowers up to 50% back-end DTI for well-qualified files.
But every dollar of monthly insurance premium is a real dollar in the numerator of that calculation, and insurance costs have risen sharply enough to tip borrowers from approval to denial – or from a loan they could afford to one they cannot.
Consider a borrower in Florida applying for a $350,000 loan with a household income of $107,000 at a 7%, 30-year fixed rate. Using national average insurance costs, homeowners insurance adds roughly 2.4% to their DTI.
But in Florida, where rates run approximately 4.6 times the national average, the same borrower faces an 11-percentage-point addition to their DTI from insurance alone - potentially the difference between qualifying and not qualifying for the loan they need.
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The availability problem compounds the cost problem. Insurance carriers have exited high-risk markets, concentrated losses on state FAIR plans, and shifted policies onto the Excess and Surplus lines market, which carries higher prices and fewer consumer protections.
By the end of 2025, E&S products accounted for 16% of Matic policies in California, Florida, and Texas - up from less than 2% in 2023. A remarkable 74% of borrowers told lenders it was either difficult to find coverage at an affordable price or that their options were severely limited.
What Brookings is proposing
Released on March 18, 2026, a proposal from three economists – Benjamin L. Collier of the University of Wisconsin-Madison, Benjamin J. Keys of the Wharton School at the University of Pennsylvania, and Philip Mulder, also of Wisconsin-Madison – argues that the insurance market's dysfunction has reached a point where private markets alone cannot solve it.
Their proposed solution is a federal entity called "US Re" that would sell reinsurance to homeowners insurance providers to cover the most extreme catastrophic weather events. Understanding why they target reinsurance, rather than primary insurance or direct subsidies, requires a brief detour into how the insurance market actually works.
When catastrophic events strike a region, insurers face what they call correlated losses: massive simultaneous claims from the same geography. To manage this exposure, primary insurers buy reinsurance from global markets, effectively passing their peak catastrophe risk to large international reinsurers.
The cost of that reinsurance for U.S. catastrophes has become, in the authors' framing, high and volatile. When reinsurance costs spike, primary insurers face limited options: raise premiums, tighten underwriting, limit coverage, or leave markets entirely. All four have been happening simultaneously since roughly 2017.
The proposal's key insight is that the federal government can borrow at rates unavailable to private market participants. Because of that cost-of-capital advantage, a federal reinsurer could credibly offer reinsurance contracts at lower and more stable prices than the private market – without subsidizing risk in the traditional sense.
US Re would still price contracts according to expected loss. It would simply remove the premium that private reinsurers must charge to generate returns for their own shareholders and capital providers.
Three design principles govern the recommendation: price risk accurately rather than subsidizing it; target genuine market failures rather than displacing healthy private capacity; and maintain political independence in setting prices – the last principle being, as the authors acknowledge, considerably easier to write into a charter than to sustain in practice.
Why the NFIP is both the precedent and the warning
No discussion of federal intervention in property insurance can avoid the National Flood Insurance Program, and this one does not try.
The NFIP, created by Congress in 1968 after the private flood insurance market effectively ceased to exist, now sits approximately $22.5 billion in debt to the U.S. Treasury – a figure that reflects decades of politically constrained premium increases, systematic underpricing, and a series of catastrophic loss events that overwhelmed the program's reserves.
Congress cancelled $16 billion of NFIP debt in 2017 just to allow claims from that year's hurricane season to be paid. The program currently has roughly $9.9 billion in remaining borrowing authority.
For mortgage brokers, the NFIP story is not an abstraction. Fannie Mae and Freddie Mac both require flood insurance coverage for properties in FEMA-designated Special Flood Hazard Areas, meaning NFIP exposure sits directly in mortgage collateral portfolios.
As the NFIP's pricing has drifted further from actuarial soundness over the years - FEMA introduced its Risk Rating 2.0 system in 2022 specifically to begin correcting this - the program has functioned as a slow-motion subsidy for development in flood-exposed areas, a dynamic that has direct consequences for collateral values and default risk in high-flood-risk markets.
The Brookings proposal tries to inoculate US Re against the NFIP's structural failures through its design principles, particularly the insistence on risk-based pricing and political independence.
Whether those structural safeguards can actually survive sustained congressional pressure from high-risk states – states whose property owners would face the direct cost of actuarially sound premiums – is the central governance question the proposal does not fully resolve, and the one that anyone familiar with the NFIP's history will find most pressing.
The collateral value dimension
The insurance crisis is not only affecting qualification rates at origination. It is beginning to alter the underlying value of collateral in ways that should concern mortgage brokers watching their markets.
Since 2018, rising premiums and local climate risk factors have reduced home values in the most catastrophe-exposed properties by roughly $20,500 for homes in the top 25% by exposure to hurricanes and wildfires – and by $43,900 for homes in the top 10%, according to Matic's analysis.
In high-risk areas, the cost and availability of insurance are suppressing demand and beginning to translate directly into home price softening.
This is the channel through which a localized insurance crisis can become a systemic mortgage market problem. Fannie Mae and Freddie Mac require insurance coverage for every mortgage they back.
When insurance becomes unavailable or unaffordable in a market, transactions slow, prices soften, and the collateral underlying existing mortgage portfolios declines in value. The GSEs' credit risk exposure to uninsured and underinsured properties is real and growing.
Mortgage-backed security investors are necessarily affected by anything that changes the distribution of collateral risk at scale.
This is why the Brookings proposal explicitly frames US Re as a contributor to mortgage market stability – not just a consumer affordability measure. A functional insurance market is a precondition for a functional mortgage market, and right now, the connection between the two is under more stress than at any point in recent memory.
What this means for brokers now
The US Re proposal is a long-term structural fix for a problem that is affecting your pipeline today. The political path to enacting it in the current environment - where federal program expansion faces significant headwinds regardless of which party controls Congress - is not short. But the dynamic it is trying to address is already fully present in the market.
There are things mortgage brokers can do right now to manage the insurance problem without waiting for Washington:
Get insurance into the preapproval conversation earlier. The most expensive insurance surprises happen when a quote is pulled at the time of commitment rather than at preapproval. Especially in high-risk states, an accurate insurance estimate – not a generic assumption – should be built into your initial PITI calculation. Walking away from a deal after rate lock because of insurance is avoidable if you identify the problem at the front end.
Know your high-risk geographies. Colorado, Texas, Georgia, California, and Florida saw some of the steepest rate increases in 2025. In markets where E&S coverage is increasingly the only option, your borrowers face not only higher premiums but also less comprehensive coverage and fewer consumer protections. This affects both qualification and collateral quality.
Understand how insurance affects DTI across product types. The front-end DTI implications of high insurance costs vary across loan programs. FHA's front-end ratio limit of 31% is considerably tighter than what DU may approve for conventional borrowers. In markets with elevated insurance costs, the gap between an FHA-eligible borrower and a conventional borrower can shrink or vanish, making program selection more consequential than it might otherwise be.
Consider how rising insurance costs affect refinance prospects. For borrowers considering cash-out refinances or rate-term refis in high-risk markets, the insurance premium they will face on a new loan is a real factor in whether the transaction makes economic sense. For clients with PITI approaching the outer edge of what they can carry, rising insurance costs between the original purchase and a refi can meaningfully change the analysis.
Watch the E&S market closely. The growth of Excess and Surplus lines coverage in high-risk states is not inherently a barrier to closing - but E&S policies require careful review to ensure they meet GSE requirements for insurance coverage. Not all E&S policies satisfy Fannie Mae or Freddie Mac standards, and a policy that technically satisfies state insurance requirements may not satisfy agency guidelines. This is becoming a more common source of last-minute closing complications.
The bigger picture
The Brookings proposal arrives at a moment when the structural connection between insurance markets and mortgage markets has rarely been more visible or more stressed.
Inflation-adjusted homeowners insurance premiums rose 28% nationally between 2017 and 2024. Carriers are canceling policies, exiting states, and in some cases becoming insolvent. State FAIR plans – designed as insurers of last resort – have become primary markets in some ZIP codes.
The January 2025 Los Angeles wildfires produced estimated total losses that could exceed $250 billion; California's FAIR Plan alone received nearly 4,800 claims and required a $1 billion assessment on private insurers to stay solvent.
Insurance costs now represent roughly 9% of the typical homeowner's monthly mortgage payment – the highest share on record. That figure is not a macroeconomic abstraction. It is sitting inside the PITI calculations on deals in your pipeline right now.
Whether Congress ultimately creates a federal reinsurer, reforms the NFIP's pricing structure, or does something else entirely, the insurance market's dysfunction is a structural feature of the mortgage origination environment for the foreseeable future.
The brokers who understand that dynamic – and build their client communication, their preapproval process, and their product selection around it - will close more deals than those who treat insurance as someone else's problem.
