Consumer Groups Give 'Bronx Cheer' To Federal Regulator That Nixed Plan To Tame Banksters' Force Placed Insurance Racket

From a press release from the Consumer Federation of America:

• Advocates at the Consumer Federation of America, the National Consumer Law Center, the Center for Economic Justice, Consumer Watchdog, the Neighborhood Economic Development Advocacy Project and the Center for Responsible Lending strongly oppose the decision of the Federal Housing Finance Agency (FHFA) – the federal regulator that oversees Fannie Mae and Freddie Mac – to halt Fannie Mae’s recent efforts to reduce the cost of force-placed insurance (FPI) for taxpayers and borrowers by over $1 billion a year.
  
  Force-placed insurance is property insurance that mortgage servicers impose on homeowners whose insurance policies lapse or are cancelled. FPI policies typically cost at least twice as much as standard homeowners insurance, despite providing far less coverage.
  
  FPI premiums are excessive as demonstrated by very low benefit ratios – the ratio of claims paid to premiums received by the insurer – of only 21% over the period 2004 through 2011. This compares to a benefit ratio for standard homeowners insurance of 63% over the same period. With the economy in recession and slow recovery, the amount of FPI sold has skyrocketed over the past several years from less than $1 billion in 2004 to $3.5 billion in 2011.

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• Fannie Mae, consumer organizations and some state insurance regulators have criticized the structure of the force-placed insurance market because force-placed insurers pay substantial kickbacks to mortgage servicers– in the form of commissions, captive reinsurance schemes and below-cost services –often by overcharging homeowners who ultimately pay for the FPI charges.
  
  Fannie’s plan would benefit taxpayers and borrowers. Taxpayers would benefit because Fannie would pay far less than it currently does for FPI and would pass those savings on to taxpayers. Borrowers would benefit because they would pay a price for FPI more closely related to the cost of providing the product and not the current price often inflated by kickbacks from insurers to mortgage servicers.

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• “Fannie Mae has done the due diligence necessary to ensure that homeowners and taxpayers would benefit,” said Birny Birnbaum, executive director of the Center for Economic Justice and an expert on FPI. “The FHFA action maintains the status quo of massive overcharges to borrowers and taxpayers.”
  
  “Fannie Mae’s original decision would have helped homeowners, taxpayers, and investors avoid unreasonable over-charges for homeowners insurance,” added National Consumer Law Center attorney Andrew Pizor. “FHFA's decision harms nearly everyone while preserving unfair practices in the mortgage servicing and insurance industries.”

For more, see Consumer Groups Decry FHFA Billion Dollar Force-Placed Insurance Giveaway.