www.lenders-financial.com        Lenders Financial Insurance Services, Troy, MI           May, 2013

Force-Placed Insurance Regulation Starting to Take Shape

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.)

Some changes 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

The Consumer Financial Protection Bureau (CFPB), created as part of Dodd-Frank, has wide ranging powers in all areas of consumer lending.

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.

Continue reading...

  Federal Housing Finance Agency

The Federal Housing Finance Agency (FHFA) oversees the Federal National Mortgage Association (FNMA) and The Federal Home Loan Mortgage Corp. (FHLMC). 

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 market.

Public input will be allowed for 60 days.

State of California

The 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 also expected.

Continue reading...

  FNMA Servicing Guide Announcement    Announced March 2012
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.

Continue reading...


  Additional Reading



LendersNews is for Senior Management, the Managers of Loan Operations and Loan Servicing, Risk Managers, Compliance Managers, Insurance Agency Managers.

To ADD a name to receive future issues, click here
To UNSUBSCRIBE, click here
To comment or send a question,
click here



Lenders Financial Insurance Services
2838 East Long Lake Rd. Suite 110
Troy, MI  48085
(248) 689-2001