While Fannie Mae works to cut costs on force-placed insurance policies, banks are resisting the effort, primarily because changes would cut into their ability to collect fees for such coverage, The Wall Street Journal reported Jan. 22.

Force-placed insurance is designed to aid borrowers who failed to insure their properties themselves or allowed their insurance coverage to lapse.

Fannie has worked for several months to obtain approval from the Federal Housing Finance Agency to use a consortium of insurers led by Zurich Insurance Group AG to provide force-placed coverage.

Currently, two companies, Assurant Inc. and QBE Insurance Group Ltd., primarily issue all force-placed insurance, and while the coverage is expensive, banks often receive big commissions for arranging the insurance — sometimes are much as 10 percent of the homeowners’ annual premiums.

However, banks said that their opposition isn’t only about fees but about coverage. In fact, some banks, such as JPMorgan Chase, Wells Fargo and Bank of America, told the Journal that they no longer accepted commissions on force-placed insurance. Instead, they said that Fannie’s proposed changes only would require insurers to cover outstanding loan balances rather than the full value or rebuild cost of a home.

Fannie is pushing for changes so that it no longer has to absorb unpaid premiums. The Journal reported that Fannie’s forced-place insurance costs have run about $500 million a year, and the agency’s proposed changes could save $150 million annually.

Since the housing bubble burst, the forced-place insurance market has grown to more than $3 billion annually in premiums. If Fannie’s proposed plan is approved, banks with Fannie-backed mortgages would be required to use the Zurich-led consortium, which would, in turn, charge 30 to 40 percent less on premiums than the current market standard.

The Journal reported that current force-placed insurance rates typically are at least twice the amount of standard homeowner insurance policies. The justification for the high costs is that a lot of the insurance is for vacant properties or those in hurricane-prone areas.