Fannie Mae's plan to reduce the cost of forced-place insurance by bringing in new specialty lenders was scotched by its regulator Monday, prompting outrage from consumer groups.
Representatives of the Consumer Federation of America were also upset that representatives of mortgage-lending trade groups were on the conference call where the regulator, the Federal Housing Finance Agency, discussed the issue with Fannie Mae staff and announced the decision, while consumer groups were not asked to participate.
Besides mortgage banks, which receive a share of the commission on force-placed lending, the two main beneficiaries of the decision are Assurant and QBE, which dominate the forced-place market.
Analysts had slashed earnings projections for Assurant by two-thirds for this year and next year after voicing deep concern that pressure by state regulators to reduce rates as well as the Fannie Mae initiative would severely reduce earnings in this line of business.
Analysts at Sterne Agee & Leach, and Macquarie Capital (USA) Inc., who had raised red flags on the issue, were not available to comment on the decision.
Meg Burns, senior associate director of the FHFA Office of Housing and Regulatory Policy, said in a statement, "FHFA's objective is consistent with what Fannie Mae was working to accomplish—to reduce costs—but to do so with all the pertinent information and in a manner that will work for both GSEs.
"This is a responsible and measured approach to put policy in place that is beneficial for both GSEs, consumers, and the industry at large," Burns said.
Fannie Mae's plan, as announced in November, was to assemble a consortium of specialty lenders that had promised to reduce rates on forced-place loans by 30 to 40 percent.
Robert Hunter, director of insurance for the Consumer Federation of America, says of the decision, "The news that FHFA has killed the only serious attempt to protect low- and moderate-income homeowners from paying between two and ten times the fair price for homeowners insurance, with the excess charges being kicked back to the banks, is shocking and outrageous.
"The FHFA claim that competition will control these abuses shows either a total lack of understanding of this market—a market based on reverse competition driving up prices to make room for the kickbacks—or a corrupt FHFA," Hunter said.
"This is one of the saddest days I have experienced in over 40 years of consumer protection," he added.
Hunter adds that FHFA Director Ed DeMarco "has failed as a leader to put competent people in decision-making positions."
Moreover, Hunter says, "Other than protecting kickbacks to servicers and profits for forced-place insurers, it is unclear why FHFA would stop an initiative designed to save borrowers and taxpayers many hundreds of millions of dollars.
"DeMarco has failed in his stated goal of protecting taxpayers by killing this initiative."
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