Federal regulators are poised to crack down on so-called force-placed property insurance amid growing concern about abusive practices that have cost homeowners.
The Federal Housing Finance Agency (FHFA) on Tuesday published two proposed guidelines that would ban many fees and commissions associated with the specialized homeowners insurance, and invited public and industry input over the next 60 days.
The agency oversees the government-owned mortgage finance giants Fannie Mae and Freddie Mac, and its final decision would affect all the mortgages guaranteed or backed by them.
The proposals, if they took effect, could cut premiums on the policies by 20 percent, said one insurance expert. Others said it's too soon to gauge the impact.
Homeowners with mortgages are required to have insurance on their property. When they don't, if they fail to pay a premium on their homeowners insurance, for instance, a bank, lender or mortgage servicer can buy the insurance and put it on the homeowner's property.
There have been widespread calls for reform of the industry, which consumer advocates say is rife with troubling relationships, conflicts of interest and fees between banks and insurance companies that have contributed to unfairly high premiums for homeowners.
The FHFA on Tuesday proposed prohibiting the practice of paying commissions to insurance agents or brokers affiliated with the banks, and banning certain reinsurance arrangements.
The move follows a major settlement last week between the state of New York and New York-based Assurant Inc., one of the country's largest providers of force-placed insurance, in which Assurant is paying a $14 million civil penalty and restitution to homeowners.
