The FHFA now intends to ban mortgage lenders from being able to receive payments.
The Federal Housing Finance Agency (FHFA) is now working to ban mortgage companies from being able to receive lucrative payments in order to arrange for forced placed insurance on behalf of homeowners in certain situations, such as when an existing policy has been allowed to lapse or has gone unpaid, against the agreement of the loan.
The U.S. housing regulator is working to stop this controversial payments practice from continuing.
Government officials have revealed that force placed insurance companies will no longer be able to pay mortgage lenders for choosing their policies when a policy is purchased on the homeowners behalf. This, despite the objections that have been raised which state that this move by the FHFA steps into the turf or the state regulators. That said, many states, such as New York, are already creating their own crackdowns on these types of behaviors.
The FHFA intends to push ahead with its ban on force placed insurance policy fees, despite certain objections, as it states that this is causing the coverage to be far too expensive for homeowners who have already stopped making their usual policy payments, likely because they can no longer afford them.
Instead of setting regulations regarding what insurers are allowed to charge for force placed insurance – which is typically the domain of the individual states – the FHFA has decided to design its efforts around preventing mortgage companies that do business with Freddie Mac and Fannie Mae from being able to accept certain types of payments. This would, in essence, stop the entire mortgage industry from being able to receive fees from these insurers, as Freddie Mac and Fannie Mae are behind approximately two in every three American home loans.
There are two forms of force placed insurance compensations that are expected to be banned from the FHFA between insurers and banks. The first is commissions on sales for choosing coverage through a specific insurer, and reinsurance relationships in which the mortgage company takes on a certain portion of the risk and is paid for this exposure.