Fannie Mae has delivered a second blow to standard industry practices for force-placing homeowners insurance on borrowers whose policies have lapsed.

New guidelines, issued March 14, bar servicers from billing Fannie Mae for the cost of administering force-placed insurance programs or paying themselves commissions.

The move comes on the heels of the government mortgage giant's announcement that it intends to request proposals from major force-placed insurers to directly provide the product to Fannie Mae. That plan, together with the new guidelines, suggests that Fannie is no longer willing to bear some of the costs traditionally associated with force-placed insurance.

Among the notable restrictions in the latest guidelines is a prohibition on acquiring force-placed insurance from carriers whose rates are not subject to state regulation. An American Banker article last spring found that one of the two dominant players in the market, QBE Insurance Inc, had structured its business in Florida, Texas, and other states in a way that allowed it to charge premiums in excess of state rate caps.

QBE did not immediately respond to a request for comment late on Thursday afternoon. Neither did Wells Fargo & Co, which is being sued over its partnership with QBE in a Florida class action.

The guidelines restrict what costs servicers can ask Fannie Mae to reimburse in the event of a borrower default.

"Fannie Mae is clarifying its requirement for reasonable reimbursable expenses for lender-placed insurance," the notice to servicers says, before listing charges that are not reimbursable: "any lender-placed insurance commission earned on that policy by the servicer or any related entity, costs associated with insurance tracking or administration, [or] any other costs beyond the actual cost of the lender-placed insurance policy premium."

Jeff Golant, an attorney who has filed force-placed consumer cases for several years and is among the attorneys handling the Florida QBE suit, welcomed the new rules.

Assuming Fannie enforces them, "this fundamentally changes the conditions in the market right now," he says. If banks must bear the cost of placing the policies and are unable to bill Fannie Mae for commissions paid to them, "it's going to change the whole industry," he said.

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