Federal regulator seeks ban on commissions for forced-place insurance

The Federal Housing Finance Agency filed a notice Tuesday that it intends to regulate forced-place insurance, expensive insurance homeowners are required to pay for when they stop paying for homeowners insurance themselves.

The agency oversees the operations of Fannie Mae and Freddie Mac, the nation’s two largest mortgage guarantors.

Premiums for forced-place insurance are generally double those for voluntary insurance, and in some cases are significantly higher.

Fannie Mae and Freddie Mac may be affected by such costs where lenders pay higher premiums and are unable to recoup the costs from the homeowner or at a foreclosure sale, and the expense is passed along to Fannie and Freddie for reimbursement, the agency said.

Due to the housing crisis, lenders increased their use of force-placed insurance.

Concerns about the insurance have been raised by the National Association of Insurance Commissioners, state regulators, the Consumer Financial Protection Bureau, state attorneys general, and consumer organizations. They’re questioning excessive rates, costs passed onto borrowers, commissions, and other costs.

The agency is proposing a rule that would prohibit insurance companies from paying sales commissions for force-placed insurance to lenders or mortgage servicers.

After a 60-day comment period, the agency will review input and determine if any changes are needed to its proposal. In its notice, the agency said it expects to issue a final rule by the end of the year.

Last week, New York Gov. Andrew M. Cuomo announced a major settlement with the country’s largest force-placed insurer, Assurant Inc. 

The settlement includes restitution for homeowners, a $14 million penalty paid to the state, and reforms that will save homeowners, taxpayers, and investors millions of dollars through lower rates.

“Our investigation found that insurers and banks built a network of troubling relationships and payoffs that helped drive premiums sky high,” Benjamin M. Lawsky, superintendent of the New York State Department of Financial Services, said in a statement. “Those improper practices created significant conflicts of interest and saddled homeowners, taxpayers, and investors with millions of dollars in unfair and unnecessary costs.”

Among the provisions of the settlement are several that prohibit some commissions and expenses.

The settlement also requires Assurant to file its rates with the state of New York and permits insurance regulators to monitor the company’s business practices