Lenders Financial Insurance Services, Troy, MI
Force-Placed Insurance Regulation Starting to Take
Force-placed insurance, for decades a reliable
and relatively quiet service for mortgage servicers, has
recently found itself in the sights of federal and state regulatory
agencies. To date, attention has been directed
primarily at the nation's largest mortgage
servicers, where force-placed insurance is a source of substantial fee income,
and where regulators feel that anti-consumer abuses
exist - and need to be corrected.
The result of this scrutiny is a growing list of regulatory changes
that will likely affect all financial institutions
that service mortgages. Changes are likely in
areas of compensation, letters to the mortgagor, and
when premium can be charged (to the mortgagor.)
are scheduled to take effect in coming months, while
others are still only proposed.
These are the federal and state agencies
that have had an impact so far:
Consumer Financial Protection Bureau
Financial Protection Bureau (CFPB), created as part
of Dodd-Frank, has wide ranging powers in all areas of
The CFPB has released new
rules governing the servicing of mortgages, which
take effect January 10, 2014. Included are new
requirements for force-placed insurance procedures
(12 CFR 1024.37).
The CFPB does exempt
"small servicers" - those institutions that
service less than 5,000
mortgages - for some changes. But ultimately,
it is possible that
these rules will become the standard for
financial institutions of all sizes.
Housing Finance Agency
The Federal Housing Finance Agency (FHFA)
oversees the Federal National Mortgage Association
(FNMA) and The Federal Home Loan Mortgage Corp.
FHFA plans to file notice to ban fees and
commissions paid by force-placed insurers to
mortgage servicers that service Fannie and Freddie loans. (This action
in fact reverses FHFA's prior ruling, in which it overruled
FNMA’s decision to eliminate commissions and
negotiate rates directly with force-place providers.)
It should be noted that FNMA alone pays over $390
million per year in force-placed insurance premiums.
FHFA feels that banning the fees and commissions
will help lower the price of force-placed
insurance. The housing agency’s move would apply
nationwide to all mortgages guaranteed or owned by
Fannie and Freddie – about half of the housing
Public input will be allowed for 60 days.
California Dept of Insurance has required several leading force-placed
insurance carriers to reduce their force-placed insurance rates by amounts ranging
from 30.5% to 19%.
State of New York
The New York Department of Financial
Institutions has reached a settlement with two leading force-placed
insurance carriers. Both insurers were fined, and
agreed to cease paying commissions to mortgage servicers (or
affiliates), meet higher loss ratio goals, and lower rates. Settlements with additional insurers are
Withdrawn May 2012
FNMA issued SVC-2012-04 on
March 14, 2012. Due to size and scope of the
new requirements, immediate pushback came from
mortgage servicers, the Mortgage Bankers Association
of America, and the force-placed insurance industry.
FNMA withdrew the
Announcement on May 23, 2012,
but suggested that servicers adhere to as many of
the requirements as possible.
Senior Management, the
Loan Operations and Loan Servicing,
Risk Managers, Compliance Managers, Insurance Agency
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Financial Insurance Services
2838 East Long Lake Rd. Suite 110
Troy, MI 48085