The regulator of Fannie Mae and Freddie Mac, seeking 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.
Assurant Inc., the largest provider of force-placed coverage in the U.S., was fined $14 million earlier this month in a probe by New York’s regulator. The insurer was ordered to cut insurance premiums and refund homeowners after a review found it had overcharged clients and won business through improper deals with banks.
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.
FHFA’s proposed ban would benefit consumers, according to Representative Maxine Waters of California, the ranking Democrat on the House Financial Services Committee.
“The current practice is deeply wrong and I appreciate the fact that the FHFA is finally yielding to legitimate concerns about abuses in this market,” Waters said today in a statement. FHFA acting Director Edward DeMarco should “make up for lost time and prevent further losses to borrowers and taxpayers by moving forward with these proposed reforms.”