At a Senate Banking Committee hearing earlier this week, Federal Housing Finance Agency (FHFA) Director Mel Watt told lawmakers the agency is making progress on changes to a controversial type of homeowners' insurance.
Force-placed insurance, which lenders buy to protect the properties of homeowners behind on their loan payments, has always been a thorny issue of the mortgage lending and servicing industry. Regulators have alleged that banks inflate the price of premiums in exchange for insurer kickbacks in the form of cash or free services.
Earlier this year, the Consumer Financial Protection Bureau (CFPB) implemented a set of news rules that prohibit servicers from receiving kickbacks for convincing borrowers to take higher-cost loans. In June, the FHFA pledged to undertake additional force-placed insurance reforms this year.
On Wednesday, Watt told the Senate Banking Committee that the issue is a "tough area" but that "we are looking at it aggressively."
Sen. Jeff Merkley (D-Ore.) told Watt, "You're in a position to stop it and I’m asking you to do so.” He added that homeowners were still being saddled with insurance that could be as much as 10 times more expensive.
The lender-placed insurance market has been under fire over allegations of conflicts of interest and inappropriate business practices among some major mortgage lenders, servicers and insurance providers.