A controversial type of homeowners insurance, known as “force-placed insurance”, is drawing the anger of consumers and federal officials alike. While the Federal Housing Finance Agency pledged to make changes to this unpopular and costly coverage, it has yet to take any action on the issue as promised. In an effort to defuse the situation, the agency’s director advised the Senate Banking Committee in late November 2014 that, although none of the agency’s plans had been implemented, it was making some progress in dealing with the questionable use of force-placed insurance.
Used by banks to protect the properties of homeowners who have fallen behind on their mortgage payments, force-placed insurance has become a heated topic in the U.S. in recent years – and, for good reason. The fact is…this type of insurance coverage costs substantially more than conventional homeowners insurance and unnecessarily places an additional financial burden on those struggling homeowners who, as a result of circumstances beyond their control, are already experiencing a hardship making their monthly house payments.
Earlier in the year, the Federal Housing Finance Agency had prohibited the collecting of payments for the purpose of purchasing force-placed insurance and vowed to proceed with further action later this year. However, there has been little else done on record so far, and many consumers and government officials are pushing for major changes to be made much sooner than later to the unfair practice.
Meanwhile, due to the lack of timely and appropriate action, some organizations have managed to bypass the bans instituted by the Federal Housing Finance Agency. Apparently, many subprime mortgage lenders have figured out a way to get around the ban specifically prohibiting the collection of payments. By doing so, it allows the mortgage servicers to thumb their noses at the agency and collect commissions on force-placed insurance coverage, regardless of the ban.
According to the Federal Housing Finance Agency, addressing this particular loophole will be difficult and, without providing details or a viable solution to remedy the problem, promised to pursue the issue aggressively. Unfortunately, while the agency goes about its search to solve their predicament, consumers will likely continue to take the financial hit.
In certain cases, force-placed insurance has been reported to be as much as 10 times more costly than conventional homeowners insurance. With this in mind, very little has been done by the federal government to level the playing field for distressed homeowners, despite the outcry of numerous consumer and advocacy groups to do something to provide relief to property owners from the coverage. And, since Federal Housing Finance Agency hasn’t shown the power or the ability to come up with an effective resolution to control or eliminate the use of force-placed insurance coverage, the wait could be a long one.
Until the time comes when the Federal Housing Finance Agency actually steps up with a serious and workable plan to control the unchanged practice or government legislation finally prohibits the use of force-placed coverage, affected homeowners will find themselves in the position of knowingly being taken advantage of by banks and lenders holding their mortgage loans.
If saving money is important to you…make sure you’re getting the best rate on your homeowners insurance. Why not get a free homeowners insurance quote today?
Do you have force-placed insurance through your private insurer? Feel free to share your thoughts in the comments section below.