WASHINGTON – Jan. 28, 2013 – Banks are in a battle with Fannie Mae over the costs of forced-placed insurance policies, which lenders force homeowners to take when their property insurance coverage lapses for some reason.

Force-placed insurance, however, generates large fees for lenders, and they don’t want any changes that cut profits. While two companies issue most forced-placed policies, banks often receive hefty commissions from them.

Fannie Mae is currently seeking approval from the Federal Housing Finance Agency (FHFA) to use a consortium of insurers, and banks are resisting the plan and raising objections about the proposal. The consortium would charge 30 percent to 40 percent less than current premiums.

The banks say Fannie Mae’s proposed changes could harm customers, leaving Fannie stuck with unpaid premiums. However, Fannie Mae suggests that forced-placed insurance costs about $500 million per year, and that its proposed change could save around $150 million a year.

The banks also say Fannie’s proposal is an overreach of its authority as it “attempts to ban legally permissible commissions.”

Source: Wall Street Journal (01/23/13) P. C3; Zibel, Alan; Scism, Leslie

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