American housing regulators are putting a stop to wrongful practices in this sector of the market.
Housing regulators in the United States have commenced a crackdown on the practices surrounding force placed insurance, which is an entirely legal and often necessary form of coverage that has been abused in recent years in the American marketplace.
The problem is that this misuse is causing harm to struggling borrowers which is sometimes unnecessary.
The issue is that the coverage that is purchased through force placed insurance is often considerably more expensive than it would be if the homeowner purchased it him or herself, instead of having it arranged by the bank. The Federal Housing Finance Agency – which is responsible for the regulation of mortgage giants Freddie Mac and Fannie Mae – has announced that it intends to file a notice in order to stop extreme practices in this market.
This would stop force placed insurance from providing banks with lucrative fees and commissions.
The Federal Housing Finance Agency’s notice filing is meant to cease the practice that is often followed, in which insurers pay considerable fees and commissions to banks who purchase their force placed insurance products to cover homeowners who have allowed their standard property policies to lapse.
These policies are purchased on behalf of the homeowners when they are borrowers who have stopped making their coverage payments or when their own policies have been allowed to lapse. Critics have been saying that by using the fee system, there is a financial incentive provided to the banks in order to purchase more expensive force placed insurance coverage than is actually necessary.
They believe that by banning the commissions, when force placed insurance is purchased, there is just as much reason for the lenders to purchase the appropriate coverage as there would be for one that is more expensive. Therefore, it might help to ensure that homeowners will have the appropriate policies purchased on their behalf. This could considerably lower the price of the policies that are purchased. It is also hoped that by doing this, it will make it more possible for those homeowners to be able to keep up with their mortgage payments, which will be very helpful to the industry.