The Federal Housing Finance Agency (FHFA), which regulates Fannie Mae and Freddie Mac, plans to issue a notice to ban fees and commissions paid by insurers to banks for force-placed insurance, which is issued to struggling borrowers when their standard property coverage lapses. Critics say the fee system provides a financial incentive to arrange more expensive homeowners' insurance policies than are necessary. The regulator hopes that banning fees and commissions will lower the costs of coverage. Such a prohibition would apply nationwide to all mortgages guaranteed or owned by Fannie and Freddie, or about 50 percent of the housing market. About 6 million force-placed insurance policies have been issued since 2009; and while the premiums are nearly twofold higher than voluntary insurance, customers can replace force-placed policies at any time. Regulators say borrowers do not heed warning letters and that they often do not realize their premiums have risen until several months have passed. Banks and insurers say they provide consumers with adequate notice, but critics are concerned that the financial relationships between banks and insurers are artificially inflating costs. The FHFA proposal will be open for comment for 60 days.
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