In September 2012, we wrote a post about force-placed insurance with the catchy title, “Force-placed insurance companies feeling the heat.” At the time, the National Association of Insurance Commissioners was just beginning to look into the practice, and Florida was dubbed “Ground Zero” for what regulators believed was an unfair business practice. Two years ago, force-placed insurance (also called “lender-placed insurance”) was the looming sub-scandal of the housing crisis.
In the fall of 2013, then, we visited the subject again (“Florida orders force-placed insurer to cut premiums by 10 percent“). Florida’s Office of Insurance Regulation seemed to be addressing the issue in the state by filing consent orders against companies that were foisting overpriced coverage on unsuspecting homeowners. Florida was cracking down, but what about the federal government?
According to the director of the Federal Housing Finance Agency, the agency overseeing Freddie Mac and Fannie Mae, the federal government is making progress on the issue. The question is, however, whether the small changes the FHFA has instituted are more movement than progress.
Two of the most pressing concerns about force-placed insurance are the extremely high rates (charged to borrowers who let their homeowners insurers policies lapse) and the close ties between the lenders and the insurance companies. For critics, the rates are noncompetitive, and the business dealings between insurers and lenders look a lot like kickbacks.
The latter was the target of an FHFA rule released over the summer. Since June, loan servicers have been barred from collecting a commission for purchasing coverage. According to the Associated Press, though, it did not take long for some large subprime loan servicing companies to figure out a way around the rule.
Questioned about the agency’s response to continued abuses, FHFA director Mel Watt recently told a Congressional committee that the agency is “looking at it aggressively.” Committee members were not pleased with his response.
Homeowners should not be pleased, either.
Source: Insurance Journal, “FHA Chief Watt Says Force-Placed Home Insurance Changes ‘Tough’,” By Jeff Horwitz, Nov. 24, 2014Share