WASHINGTON, March 26 A U.S. regulator on Tuesday
outlined possible guidelines to help homeowners avoid high-price
property coverage by trimming or even banning certain fees paid
by insurers to banks on so-called force-placed insurance.
All mortgages require homeowners to maintain insurance on
their property. Most mortgages also allow the lender to purchase
insurance for the home and "force-place" it if a policy lapses
or borrowers stop paying their insurance bills.
Force-placed policies are often taken out by banks or other
lenders on homes where the owner does not have sufficient or any
coverage. State and federal regulators have often accused
insurers of artificially inflating the charges for such
The Federal Housing Finance Agency, which regulates mortgage
finance companies Fannie Mae and Freddie Mac
, published guidelines that may lead to restrictions on
those fees and commissions banks collect from insurers on
The regulator is seeking input from the industry on
possible changes. Following a 60-day period, the FHFA will
determine whether Fannie Mae and Freddie Mac, the two
government-sponsored enterprises (GSEs), will implement those
guidelines to change some of the force-placed industry's
Premiums for forced-placed, or lender-placed, insurance are
often double those for voluntary insurance and in some instances
are significantly higher, according to the FHFA.
"FHFA recognizes that some greater risks are involved with
lender placed insurance," the regulator stated. "In order to
keep lender placed insurance costs to the (GSEs) as low as
possible, practices that provide incentives for or do not deter
higher costs should be avoided."
Homeowners can avoid force-placed insurance if they remain
current on their mortgage. Many who experience coverage gaps
have severe financial problems that lead them to stop paying
their insurance bills.
Forced-placed policies were widespread during the recession,
as delinquencies swelled and homeowners effectively stopped
paying their insurance since premiums are often included in
Since then, the fee structure has garnered scrutiny, and
some critics say it has allowed banks to gain financially when
more expensive homeowners' policies are implemented than might
otherwise be necessary.
The regulator's final decision would affect all mortgages
guaranteed or backed by Fannie Mae and Freddie Mac. The two
companies, which provide the financing for about two-thirds of
all new U.S. home loans, are often exposed to potential losses
for the costs for unpaid insurance fees, the FHFA said.