Big Banks Win, Taxpayers Lose as Fannie Insurance Overhaul Spiked

FannieMayhem

Big Banks Win, Taxpayers Lose as Fannie Insurance Overhaul Spiked

As the overseer of mortgage giants Fannie Mae and Freddie Mac, the Federal Housing Finance Agency has a duty to safeguard taxpayer dollars. But the regulator may have done just the opposite earlier this month.

On February 11, the FHFA held a conference call to inform a group of mortgage trade associations that it had vetoed a Fannie Mae proposal to buy force-placed insurance directly from underwriters. The news was greeted warmly by those listening in, given that Fannie’s plan had threatened to cut mortgage banks from their profitable positions as middlemen.

Fannie’s plan would have lowered the cost of some homeowners’ insurance significantly and saved the government-sponsored enterprise at least $145 million annually, sources familiar with Fannie’s plan and program documents state.

The FHFA’s decision left plan supporters and others at a loss for an explanation save one — that the FHFA buckled under pressure from insurers and bankers, protecting controversial business practices that have drawn the ire of state insurance officials and consumer advocates alike.

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