WASHINGTON (2/13/13)--The Federal Housing Finance Agency (FHFA) has reportedly abandoned a plan to lower force-placed insurance premiums for homeowners, instead opting to study the issue.
The agency will develop a working group to study the force-placed insurance issue and evaluate how force-placed insurance impacts Fannie Mae.
"FHFA's objective is consistent with what Fannie Mae was working to accomplish--to reduce costs--but to do so with all the pertinent information and in a manner that will work for both [government sponsored enterprises (GSEs)]. This is a responsible and measured approach to put policy in place that is beneficial for both GSEs, consumers, and the industry at large," FHFA Office of Housing and Regulatory Policy Senior Associate Director Meg Burns said.
Under a plan submitted to the Federal Housing Agency last October, Fannie Mae would require banks and other mortgage servicers to replace existing force-placed policies on loans it guarantees with insurance provided by a consortium of carriers offering 30% to 40% discounts.
Force-placed insurance is a form of hazard coverage banks buy to protect the properties of buyers who have let their homeowners' insurance lapse. Under standard mortgage terms, borrowers are contractually obligated to maintain hazard insurance. In the event that homeowners fail to maintain such coverage, mortgage servicers are entitled to buy force-placed coverage on their behalf and bill the homeowners.
Some consumer advocates and insurance regulators have criticized banks for reinsuring or collecting commissions on the force-placed insurance policies they buy, saying the policies amount to kickbacks and inflate the price of coverage. Credit Union National Association General Counsel Eric Richard noted that consumer abuse in the forced placement market has attracted the attention of the Consumer Financial Protection Bureau.