Force-placed insurance underwriters would be barred from payingfees and commissions to banks who own or service home mortgagesthat are either delinquent or in foreclosure under a rule proposedby the regulator of Freddie Mac and Fannie Mae.

Technically, the proposed action by the Federal Housing FinanceAgency would bar the government-sponsored enterprises (GSE) frompaying commissions to the banks that service troubled mortgagesthat the GSEs guarantee.

Force-placed homeowners insurance is projected to bring in $2.6billion in written premiums annually.

The proposed notice of FHFA's action is being published today inthe Federal Register. FHFA is giving interested parties 60 days tocomment, and sometime after that period it will issue a finalpolicy for Fannie and Freddie to follow.

Robert Hunter, director of insurance for the Consumer Federationof America, says, “CFA applauds FHFA's strong action to protectconsumers and taxpayers from some of the excesses of force-placedinsurance.

“Sweetheart commission and reinsurance arrangements will soonend and will only be a distant nightmare for those borrowers onceforced to eat these excessive costs.”

Kevin McKechnie, senior vice president and director of theAmerican Bankers Association's Office of Insurance Advocacy, says,“We support an open process that invites comment from allstakeholders, especially state insurance regulators, statelegislators, consumers and insurance and servicer partners.”

McKechnie adds, though, “We remain concerned that FHFA's broadreform proposal may limit the ability of smaller servicers tocontinue meeting their customers' insurance needs.”

But he says, “We will continue to work with regulators todeliver collateral insurance in the best way possible.”

The FHFA action follows a disclosure last week by New York thatit had reached an agreement with Assurant, Inc. on a program thatwould reform Assurant's forced-place lender program.

In its settlement with New York, Assurant agreed to maintain itsloss ratio at 62 percent or more, with three-year reviews of ratefilings to get it there if losses are less. They will be requiredto adjust rates immediately if the loss ratio falls below 40percent.

Additionally, Assurant agreed to pay $14 million to the state tosettle claims of overpayments by homeowners and others, includingFannie and Freddie, for force-placed insurance provided byAssurant.

It also agreed to refund payments to customers who feel theyhave been charged in error for lender-placed insurance.

Assurant spokesman Robert Byrd, based in Atlanta, says Assuranthas agreed to participate in that program, “as it has always beenour policy to issue refunds in the event a policyholder was somehowcharged erroneously.”

That settlement was based on a probe by the New York Departmentof Financial Services that last year found that nearly 15 percentof the premiums from force-placed policies flow back to thebanks.

The DFS probe found that banks' commissions on the force-placedpolicies frequently top more than 10 percent of the homeownersannual premiums of about $2,000, according to regulators.

In response to the FHFA action, Robert Byrd, a spokesman forAssurant, says, “We've worked with Fannie and Freddie for years andlook forward to working with them and the FHFA as they developtheir insurance programs.”

Byrd says, “We are confident we offer the expertise,capabilities and flexibility to provide effective solutions toprotect GSEs, lenders and homeowners alike.

“We already work with a number of insurance affiliates who waivecommissions, and others who do not. We can work with eitherapproach.”

Cuomo also issued a statement in response to DeMarco'sactions.

“New York's reforms and the findings of the extensiveinvestigation by the Department of Financial Services continue toserve as a national model and FHFA's new proposal appears to beanother step in that direction,” Cuomo says.