FHFA

FHFA Kills Fannie Mae Force-Placed Insurance Plan

The Federal Housing Finance Agency has killed a plan to slash premiums for replacement homeowners insurance on Fannie Mae loans, according to people informed of the agency’s decision.

The FHFA, which is the conservator of the government-sponsored enterprise, announced its decision Monday on a conference call with Fannie Mae staff and mortgage industry trade groups.

The regulator’s move will block a plan that was expected to save Fannie and homeowners as much as $300 million a year, according to people familiar with it. The plan would have supplied homeowners with low-cost housing insurance from Fannie’s own vendors and prevented banks from collecting payments for steering business to “forced-placed” insurance carriers.

Force-placed insurance is hazard insurance purchased when struggling mortgage borrowers fail to maintain coverage on their own homes. It has become increasingly controversial in recent years as state regulators and consumer advocates have uncovered a pattern of alleged kickbacks from insurers to the banks who buy it.

Fannie’s plan represented the largest threat to the current structure of the industry, and had drawn criticism from mortgage and insurance industry trade groups over the past few months.

In the place of Fannie’s plan, the FHFA has asked Fannie to work with fellow GSE Freddie Mac and a group of mortgage industry trade associations to study force-placed insurance costs further. The original Fannie plan is not a possible outcome of those talks.

“That will not be part of the new direction,” Meg Burns, senior associate director of the FHFA’s office of housing and regulatory policy, said during an interview Monday afternoon. She called the FHFA’s move “a responsible and measured approach to put policy in place that is beneficial for both GSEs, consumers, and the industry at large.”

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