WASHINGTON-Fannie Mae said it is ending the practice of credit unions and banks forcing expensive homeowners insurance on borrowers and will seek to oversee such policies itself.
Fannie notified lenders of the planned policy change in a recent bulletin. "Fannie Mae will soon implement changes to its Lender-Placed Insurance (LPI) requirements to significantly reduce costs to homeowners, taxpayers, and Fannie Mae," it said in the bulletin. The GSE added it has issued a request for proposals to insurance companies to compete for the business.
For many homeowners who are required to buy insurance as a condition of getting or keeping a mortgage, there is no choice as to insurer, terms or price. They end up with "force-placed insurance," controversial policies that are purchased by the bank or mortgage servicer on the homeowners' behalf.
"The [proposal] is structured to ensure that insurance costs are significantly reduced," Fannie stated. Fannie Mae also said it would issue guidelines to mortgage servicers on when and how to obtain force-placed policies, and on what costs would be reimbursable.
In many cases, existing force-placed insurance policies are sold by insurance companies owned by the lenders, or by insurers with which the lenders have a financial relationship. Prices are usually substantially higher than they would be normally.
New York financial regulators have been investigating the practice, issuing subpoenas in January to roughly two-dozen insurers and mortgage servicers.
