WASHINGTON – A proposal by Fannie Mae to lower the cost of force placed homeowners’ insurance policies has been rejected by the Federal Housing Finance Agency, the regulator for Fannie Mae and Freddie Mac.

Force placed insurance is designed to protect lenders and mortgage investors when homeowners stop paying policy premiums. It typically is selected by lenders and billed to borrowers.

Fannie had been working on a plan to cut the cost of force placed insurance, but the plan needed to be approved by the regulator.

The regulator’s move will block a plan that was expected to save Fannie and homeowners as much as $300 million per year, according to people familiar with it. The plan would have supplied homeowners with low-cost housing insurance from Fannie’s own vendors and prevented banks from collecting payments for steering business to force placed insurance carriers.

The regulator now will work on an approach that would apply to both Fannie and Freddie, an FHFA official said.

The two companies that sell the vast majority of these policies, Assurant and QBE Insurance, have been criticized by state regulators who argue that the insurance is overpriced and reflects excessive fees paid to banks.

 

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