One of the main requirements for securing a mortgage is homeowners insurance. Lenders want to protect their investments, and so they will nearly always insist on this requirement. This insistence is taken to extremes when a homeowner forget to renew their homeowners insurance policy – the lender will do so for them, forcing them to pay for homeowners insurance that is often very expensive.
Recently, a number of federal and state officials have voiced concern that homeowners are forced to bear the brunt of these expensive “forced homeowners insurance” policies, and according to the Wall Street Journal, could be about to put a stop to them.
The Consumer Financial Protection Bureau has said it is looking at ways to stop mortgage servicers from forcing this product onto homeowners, “unless there is reasonable basis to believe that borrowers have failed to maintain their own insurance.”
In addition, Fannie Mae has also said that it wants to put an end to these forced policies. It says that forced homeowners insurance is often very expensive and makes it difficult for homeowners to be able to repay their mortgages. Further, if a homeowner with this type of insurance falls into foreclosure, Fannie Mae then has to foot the bill.
The Wall Street Journal reports that Fannie Mae is considering soliciting proposals from insurance companies to compete for its forced-placed homeowners insurance business. Should they go ahead and do so, this would be a departure from normal practice, where lenders traditionally manage their own relationships with providers of forced-placed insurance.
Fannie Mae has said that it will provide updated guidance on the subject for mortgage servicers soon.