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Rules restrict lenders use of force-placed insurance


WASHINGTON – Nov. 6, 2013 – The Federal Housing Finance Agency (FHFA) announced that Fannie Mae and Freddie Mac would no longer allow its mortgage servicers – the companies that own or administer property loans – to receive a fee or commission from insurance companies that it uses for force-placed policies.

A force-placed policy, or captive reinsurance, is a policy added by a mortgage lender when the homeowner drops coverage as required by the mortgage agreement. The cost of a force-placed policy is added to the monthly mortgage amount, and it’s usually higher than the rate found in the general marketplace.

The change does not directly help homeowners, but it could help indirectly by cutting down on mortgage servicer profits.

FHFA published a Notice in the Federal Register last March about the proposed change, and it accepted public input. Beyond help homeowners might receive, the Notice also cited concerns about Fannie Mae and Freddie Mac exposure to potential losses as well as litigation.

FHFA also established a Regulatory Working Group to study the proposal before it became official. The agency said it carefully considered the group’s views, along with “more than 30 replies FHFA received from consumer advocates, state regulators, lender-placed insurance carriers, servicers, managing general agents, individuals and trade associations.”

“One of our primary responsibilities as conservator of Fannie Mae and Freddie Mac is to preserve and conserve their assets on behalf of taxpayers,” says FHFA Acting Director Edward J. DeMarco. “This directive is intended to reduce their costs as we consider additional measures.”

© 2013 Florida Realtors®

Related Topics: Property insurance