Force-Placed Insurance Curbed by Regulator of Fannie, Freddie

Servicers of mortgages backed by Fannie Mae and Freddie Mac can no longer place insurance on homes and then accept compensation from the insurers providing the policies, the U.S. Federal Housing Finance Agency said.

Lenders arrange for such force-placed policies to protect their collateral when homeowners allow their coverage to lapse. The FHFA, regulator of Fannie Mae and Freddie Mac, is intervening because of concerns that commissions paid by insurers to the banks were inflating the price of the policies and exposing the two companies to the risk of lawsuits.

“FHFA remains concerned about the cost of lender-placed insurance for Fannie Mae, Freddie Mac, and consumers,” FHFA Acting Director Edward J. DeMarco said in a statement. “One of our primary responsibilities as conservator of Fannie Mae and Freddie Mac is to preserve and conserve their assets on behalf of taxpayers.”

The FHFA is also considering “additional measures,” DeMarco said.