WASHINGTON (3/1/13)--Rep. Maxine Waters (D-Calif.) Thursday questioned the acting head of the Federal Housing Finance Agency about the agency's recent decision to block Fannie Mae from moving forward with a plan to lower force-placed insurance premiums for homeowners and instead opting to study the issue.
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.
Waters, the ranking Democratic member of the House Financial Services Committee, wrote to FHFA's Edward DeMarco that Fannie Mae's plan could have saved "taxpayers and borrowers from unnecessarily high costs related to force-placed insurance."
"Evidence suggests that force-placed insurance can cost up to ten times more than voluntary homeowners insurance, and that these excessive insurance costs increase the debt owed by borrowers and there impose unnecessary losses on guarantors such as the government-sponsored enterprises you are charged with conserving," Waters wrote in a Feb. 27 letter. FHFA is conservator of both Fannie Mae and Freddie Mac.
Waters asked DeMarco to provide an explanation of the agency's decision to reject Fannie's proposal, a list of the FHFA's outside stakeholders who informed the agency's decision, and an outline of its plan, if there is one, on how to proceed with force-paced insurance reform.
Credit Union National Association General Counsel Eric Richard has noted that consumer abuse in the forced placement market has attracted the attention of the Consumer Financial Protection Bureau.