FHFA Seeks Curbs on Force-Placed Homeowner’s Insurance

The regulator of Fannie Mae and Freddie Mac, aiming to protect homeowners from price-gouging on insurance, wants to ban fees and commissions on policies that borrowers are compelled to buy when their own coverage lapses.

The Federal Housing Finance Agency proposed curbs on so- called force-placed insurance practices that drive up costs for consumers, according to a statement today. The FHFA would stop insurers from paying mortgage companies that send them such business and other practices that create a conflict of interest, according to the statement.

Force-placed insurance is designed to protect lenders and mortgage investors when a homeowner stops paying premiums for property insurance. A lender can force the customer to take out a new policy from an insurer typically selected by the bank, which may get paid for referring the business, and the rates may be higher than those available in the open market.

California, Florida and New York regulators have pressed insurers to cut premiums on force-placed policies amid inquiries into whether they charge too much.

The FHFA will seek public comment for 60 days and plans to offer guidance regarding these practices to sellers and servicers four months after that, according to today’s statement.

To contact the reporter on this story: Elizabeth Dexheimer in New York at edexheimer@bloomberg.net

To contact the editor responsible for this story: Rick Green at rgreen18@bloomberg.net

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