WASHINGTON - The Federal Housing Finance Agency has yet to deliver on changes to a controversial type of homeowner's insurance even as its director told the Senate Banking Committee on Wednesday that it's making progress.
So-called force-placed insurance, which banks buy to protect the properties of homeowners behind on their loan payments, costs far more than regular homeowners' insurance. State regulators and plaintiff's attorneys allege that banks inflate the price of premiums in exchange for insurer kickbacks in the form of cash or free services.
The Federal Housing Finance Agency oversees Fannie Mae and Freddie Mac, the government-backed mortgage giants that guarantee most mortgages. In June, the agency prohibited servicers from collecting cash in exchange for purchasing force-placed insurance, and pledged to undertake additional reforms this year.
The Associated Press reported this summer that some of the country's largest subprime mortgage servicers had already found a way to circumvent the ban on commissions.
On Wednesday, Federal Housing Finance Agency Mel Watt told the Banking Committee that addressing the abuses is a "tough area" but that "we are looking at it aggressively."
Sen. Jeff Merkley, D-Ore., noting reports by the AP and National Public Radio, said homeowners were still being saddled with insurance that could be as much as 10 times more expensive.
"You're in a position to stop it," Merkley told Watt, "and I'm asking you to do so."
The FHFA did not immediately respond to an AP question about whether it still intends to take additional action on force-placed insurance before the end of the year.
Force-placed insurance was one of many contentious topics raised by Democrats during Watt's first appearance before the Banking Committee. Sen. Elizabeth Warren, D-Mass., faulted Watt for failing to allow Fannie and Freddie to consider loan principal reductions when modifying troubled borrowers.
"You've been in office for a year now, and you haven't helped a single family," Warren said.
Republicans pushed Watt on FHFA plans to allow borrowers with good credit to get a mortgage with a down payment as low as 3 per cent. Watt promised that the loans would not pose undue risk to the government and said details would be announced in December.