Optimizing Force-Placed Insurance

The recent decision by the Federal Housing Finance Agency (FHFA) not to move forward with Fannie Mae’s proposed Force-Placed Insurance (FPI) program presents several opportunities and challenges for mortgage servicers (“Servicers”) as they consider how to manage FPI going forward. While the decision amounts to a lost opportunity to immediately lower FPI costs for homeowners and taxpayers on a broad scale, the Fannie Mae proposal highlighted issues in the current FPI marketplace and brought awareness and focus to the currently overpriced FPI insurance premiums. As these cost issues are likely to face continued scrutiny, forward thinking Servicers have an opportunity to proactively address the high FPI insurance premiums, thereby creating differentiated value propositions vis-à-vis those of their competitors. Achieving the lower rates, however, may require Servicers to consider new approaches to how FPI is priced and managed.

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