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FHFA Proposes Force-placed Insurance Payment Changes
WASHINGTON (3/27/13)--The Federal Housing Finance Agency (FHFA) on Tuesday proposed rule changes that would prevent mortgage sellers and servicers from collecting certain fees and payments from insurers that offer force-placed home insurance.

Force-placed insurance is a form of hazard coverage financial institutions 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.

Credit Union National Association Deputy General Counsel Mary Dunn said CUNA will weigh in on the FHFA proposal, "and will seek to minimize any negative impact on credit unions."

Some consumer advocates and insurance regulators have criticized financial institutions 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. Consumer abuse in the force-placed insurance market has also attracted the attention of the Consumer Financial Protection Bureau, CUNA General Counsel Eric Richard noted.

The FHFA noted these and other concerns in its policy notice, saying comments it has received from various government agencies have focused on excessive rates and costs that are sometimes passed onto borrowers, as well as commissions and other compensation paid to servicers by insurance carriers.

Public comment on this issue will be accepted for 60 days after the notice is published in the Federal Register, the FHFA said. Comments on how transparency and consumer and investor protections could be improved will also be accepted.

For the notice, use the resource link.

Earlier this year, the FHFA delayed implementation of a plan to cut some force-placed insurance costs. Under that plan, 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. Instead of moving forward with the plan, the FHFA announced it would develop a working group to study force-placed insurance issues and evaluate how force-placed insurance impacts Fannie Mae.

Rep. Maxine Waters (D-Calif.), the ranking Democratic member of the House Financial Services Committee, criticized the FHFA's decision to delay the force-placed insurance changes, saying the plan could have created savings for taxpayers and borrowers alike.
Other Resources

FHFA Notice
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