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ABA: The American Bankers Association
Letter to Congress & Regulators

Joint Letter to FHFA on GSE Property Insurance Update

  • From American Bankers Association, Housing Policy Council HPC, Mortgage Bankers Association MBA
  • Published November 18, 2024

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Dear Director Thompson,

The American Bankers Association, Housing Policy Council, and Mortgage Bankers Association (the Associations) respectfully request that the Federal Housing Finance Agency (FHFA) direct Fannie Mae and Freddie Mac (the Enterprises or the GSEs) to rescind the bulletins issued in February 2024 regarding property insurance verifications (2024 Bulletins), as well as recall the associated survey currently being conducted for lenders and servicers.

As we have previously communicated to FHFA’s and the GSEs' staff, the 2024 Bulletins have created significant operational, legal, and consumer protection questions and challenges. Therefore, the Associations respectfully request that the Enterprises rescind the 2024 Bulletins and affirmatively state that the current industry practice of verifying that an insurance policy pays claims on a replacement cost basis meets GSE requirements. Such a step will provide much needed clarity while FHFA and the Enterprises engage in a revised process (described below) that is transparent, inclusive, and follows established protocols to clearly identify the problem(s) they seek to address with the policy changes announced in the Bulletins.

The Associations appreciate the ongoing efforts of FHFA and the GSEs to engage with the property and casualty insurance sector and encourage the continuation of this dialogue as an essential first step in addressing the challenges posed by the 2024 Bulletins. However, the current survey process that seeks to collect data from lenders and servicers through a non-transparent and non-public process is premature and likely violates the Paperwork Reduction Act (PRA).

These surveys, as currently constructed, exacerbate the industry’s uncertainties and fail to acknowledge or address the full range of unintended consequences resulting from the unachievable standards articulated in the 2024 Bulletins (and the underlying policy). Indeed, neither the Bulletins nor the surveys acknowledge that the newly announced policy is inconsistent with some state and federal regulations, and they do not provide clear or practical expectations for action when a servicer identifies insufficient coverage.

Instead of proceeding with the surveys, we urge FHFA and the GSEs to continue their policy dialogue with the property and casualty insurance sector. If, after this engagement, FHFA and the GSEs determine that additional information is necessary, they should initiate a transparent and public Request for Information (RFI). The RFI should be informed by discussions with the insurance industry and should clearly identify potential safety and soundness concerns deserving further examination. Additionally, the RFI should outline specific objectives, such as policy and practical procedural changes FHFA and the GSEs believe are necessary to address the concerns identified. Once the questions are carefully developed and made available for public comment, lenders and servicers will be better positioned to contribute constructively to the process.

The Associations appreciate your consideration of this request and look forward to continuing our work with the FHFA and Enterprises to develop policies that serve the best interests of all stakeholders involved.

Sincerely,
American Bankers Association
Housing Policy Council
Mortgage Bankers Association

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