Feds Look to Deep-Six 'Forced' Home Insurance

Banks benefit from practice that has gouged millions

By Matt Cantor,  Newser Staff

Posted Mar 26, 2013 12:11 PM CDT

(Newser) – Since 2009, some six million "force-placed" home insurance policies have been written—expensive policies that hit homeowners if their original plans fall through, for instance, because they've fallen behind on payments. But these "forced" policies can cost up to 10 times as much as the original plans, and homeowners who've dropped their initial policies often don't realize what they're getting themselves into—though they can opt to replace the forced policies with plans they've picked. Now, federal regulators are looking to ease the forced-policy burden, the Wall Street Journal reports.

Insurance companies pay banks fees and commissions on the forced policies, a practice that some say encourages banks to establish overly expensive policies in the first place. Some banks also receive a share of $2.6 billion in premiums from the policies. In a filing today, the Federal Housing Finance Agency will call for a ban on those fees. The move, which would apply to all Fannie Mae- or Freddie Mac-backed mortgages—or half the housing market—could cut the prices of the policies, the Journal notes. The federal filing will be open for comment for 60 days, during which it could be amended.

In this Thursday, Jan. 3, 2013, photo, a home is for sale in Mount Lebanon, Pa.   (AP Photo/Gene J. Puskar)
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