FHFA Kills Fannie Mae Force-Placed Insurance Plan
A plan to slash premiums for replacement homeowners insurance has been killed by the Federal Housing Finance Agency, according to people informed of the agency's decision.
The move was announced on a Monday FHFA conference call with Fannie Mae staff and mortgage industry trade groups. The FHFA is the regulatory overseer of Fannie Mae and Freddie mac. Its decision will block a previously announced Fannie plan that was aimed at acquiring low-cost force-placed insurance from its own vendors and preventing banks from collecting payments for steering business to force-placed carriers.
"This is a responsible and measured approach to put policy in place that is beneficial for both GSEs, consumers, and the industry at large," said Meg Burns, the senior associate director of the FHFA's office of housing and regulatory policy.
The FHFA's move amounts to a major victory for a coalition of mortgage industry trade groups that have lobbied extensively against Fannie's plan, which had been expected to lower insurance premiums by roughly 30%, saving the government and struggling GSE-backed homeowners several hundred million dollars annually.
Rather than permit Fannie to buy force-placed insurance from a consortium of low-cost insurers, the FHFA will form a study group to further review the force-placed insurance market and its costs to Fannie Mae.
The plan was scotched over concerns that Fannie did not have enough data on the current market, according to a person who participated in the conference call. Major mortgage banks and the two major force-placed insurance carriers that dominate the market blocked the GSE's effort to obtain basic information about the insurance on its portfolio, sources familiar with Fannie's efforts say. Despite repeated requests, the GSE was unable to determine how many of its loans carry force-placed insurance, the precise cost of the policies for the GSE and the nature of the financial ties between mortgage servicers and insurers.
At first blush, the FHFA's move appears to kill the single most significant regulatory threat to the force-placed insurance industry, which has been the subject of significant controversy over the last few years. American Banker has reported that the insurers provide sizable commissions to banks which give them business. The business has also been the focus of numerous investigations by state regulators over the past few years.
"We would not disagree that historically there had been some very questionable practices between the parties," the FHFA's Burns said. But the FHFA has no timeline on which it expects to act, and believes that market competition in the current industry may be able to address some of the problems.