Score one for homeowners against questionable dealing by banks and insurers. New York State led the way when it cracked down recently on the practice of forced-placed insurance, and now the Federal Housing Finance Agency (FHFA) intends to do the same thing. FHFA is the agency that oversees Fannie Mae and Freddie Mac. It filed notice that it wants to ban commissions and payments to banks and loan servicers from insurance companies.
Why It Matters
This matters because when you fail to pay your homeowner’s insurance a mortgage holder can arrange forced-placed insurance for you. Whoever arranges this insurance profits by receiving commission from the insurance companies.
A New York State Department of Financial Services (DFS) investigation found, “…premiums charged to homeowners for forced-placed insurance can be two to ten times higher than premiums for voluntary insurance — despite the fact that forced-placed insurance provides far less protection for homeowners than voluntary insurance.”
New York reached a $14 million settlement with insurance giant Assurant and money will be refunded to homeowners. Fannie Mae is now following New York’s lead. And that’s welcome news.