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FHFA Wants to Ban High Fees on Force-Placed Homeowner Policies

Nov 7, 2013

Federal housing authorities want to ban what they consider to be exorbitant fees that banks pay to home insurance companies on so-called "force-placed" insurance policies.

According to a Wall Street Journal report this week, the Federal Housing Finance Agency (FHFA) wants to ban insurance companies from accepting payments on these force-placed policies. Force-placed insurance policies are put in place when a homeowner's regular insurance policy has lapsed. The policies are designed to protect the bank's stake in the home they're providing a loan for from a disaster like a fire or flood.

Mortgage companies that do business with Fannie Mae and Freddie Mac would be prevented from taking these high fee payments on force-placed policies. FHFA decided to set rules on what payments can be accepted rather than set rules on the actual cost of these force-placed policies. That, Wall Street Journal reports, would be more the job of a state regulatory agency.

New York and Florida are among the states that are leading an effort nationwide to get the price of force-placed homeowner insurance policies down closer to the cost of a regular homeowner policy, notes.

In New York, specifically, force-placed insurance companies were banned from taking commissions on payment for force-placed policies. Insurance companies agreed to the changes and agreed to stop taking other related payments on force-placed policies, according to the Wall Street Journal report.

FHFA believes that a mutually beneficial relationship exists between banks and insurance companies that sell force-placed policies. This relationship, which allows the price of force-placed policies to skyrocket, also creates a non-competitive insurance market for homeowners.

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