FHFA Ruling on Forced Placed Insurance Criticized by Consumer Groups

by devteam February 14th, 2013 | Share

A consortium of consumer advocates is criticizing a recent decision by thernFederal Housing Finance Agency (FHFA) regarding Fannie Mae’s attempt to reformrnits forced-placed insurance program. rnForced Placed Insurance (FPI) is insurance placed on a property by a lenderrnwhen the owner fails to keep hazard or flood insurance in place.  </p

The Consumer Federation of America, the National Consumer Law Center, thernCenter for Economic Justice, Consumer Watchdog, the Neighborhood EconomicrnDevelopment Advocacy Project and the Center for Responsible Lending issued arnstatement on Wednesday opposing the decision of FHFA to cancel a program implementedrnby Fannie Mae which the group said might save borrowers over $1 billion a year.rn</p

FPI policies typically cost at least twice as much as standard homeownersrninsurance while providing far less coverage.   The consumer groups said that FPI provides veryrnlow benefit ratios; the ratio of claims paid to premiums received by the FPIrninsurer was 21% over the period 2004 through 2011 compared to 63 percent for standardrnhomeowners insurance over the same period. With the economy in recession andrnslow recovery, the amount of FPI sold has skyrocketed over the past severalrnyears from less than $1 billion in 2004 to $3.5 billion in 2011.</p

In its statement the consumer groups said, “Fannie Mae, consumerrnorganizations and some state insurance regulators have criticized the structurernof the force-placed insurance market because force-placed insurers payrnsubstantial kickbacks to mortgage servicers- in the form of commissions,rncaptive reinsurance schemes and below-cost services -often by overcharging homeownersrnwho ultimately pay for the FPI charges.” </p

Earlier this year, Fannie Mae announced a plan to purchase FPI directly fromrna consortium of insurance companies at an estimated 40% discount to pricesrncurrently charged by QBE and Assurant which together have written over 99rnpercent of FPI over the last several years. rnFannie Mae was moving to implement the plan when the Federal HousingrnFinance Agency ordered it to stop, citing a need to take a “measured approach.”</p

Birny Birnbaum, executive director of the Center for Economic Justice and anrnexpert on FPI. “The FHFA action maintains the status quo of massive overcharges</bto borrowers and taxpayers."

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About the Author


Steven A Feinberg (@CPAsteve) of Appletree Business Services LLC, is a PASBA member accountant located in Londonderry, New Hampshire.

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