WASHINGTON—A U.S. housing regulator is cracking down on a little-known practice that has hit millions of struggling borrowers with high-price homeowners’ insurance policies arranged by banks that benefit from the costly coverage.
The Federal Housing Finance Agency, which regulates mortgage giants Fannie MaeFNMA -6.99% and Freddie Mac, FMCC -6.09% plans to file a notice Tuesday to ban lucrative fees and commissions paid by insurers to banks on so-called force-placed insurance.
Such “forced” policies are imposed on homeowners whose standard property coverage lapses, typically because the borrower stops making payments. Critics say the fee system has given banks a financial incentive to arrange more expensive homeowners’ policies than necessary.
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