www.lenders-financial.com     Lenders Financial Insurance Services, Troy, MI       June, 2012

Agencies Take Aim at Lender-Placed Insurance

After decades of quiet existence serving the nation's financial institutions, lender-placed insurance (also known as force-placed insurance) has recently become the target of several state and federal agencies, who oversee mortgage lenders.

The agencies are calling for changes in how lender-placed insurance is used to insure the properties of mortgage borrowers.  The changes come in an atmosphere of increased consumer protection, and are an outgrowth
of the turbulence that has characterized the mortgage lending industry over the past four years.

Three unrelated events have taken place in just in the past three months that call for changes to lender practices regarding lender-placed insurance: 

  • New Guidelines from Fannie Mae to its servicers.
     
  • Proposed changes announced by the Consumer Financial Protection Bureau (CFPB), to be implemented in 2013
     
  • A New York State Investigation into Lender-Placed compensation to Financial Institutions

Fannie Mae

Receiving the most immediate attention is the Servicing Guide Announcement from Fannie Mae, issued in March 2012 (read it here), which would directly affect all FNMA servicers. 

Fannie's proposed changes include a required amount of insurance, required deductibles, specific type of insurance carrier, and required administrative procedures.

Within hours of the Announcement's release, both FNMA servicers and lender-placed insurance providers began campaigning against the changes, claiming that they could not be implemented in the required time frame.  Even the Mortgage Bankers Association of America requested that the changes would be impossible to implement.

The result was Fannie Mae issuing a Servicing Notice on May 23, 2012, which postponed implementation of the changes until further notice. (read it here)

Consumer Financial
Protection Bureau

In April, the CFPB released a four-page summary of a proposal that it said "would put the 'service' back in mortgage servicing."

The summary touched on many parts of mortgage servicing, including the practice of issuing lender-placed insurance.  It notes certain "abuses" committed by mortgage servicers, no doubt referring to the very largest mortgage lenders.

Calling for changes similar to the changes called for by Fannie Mae, the CFPB changes are far reaching, since they would affect just about every mortgage lender / servicer in the nation.

 

 

 

 

CFPB issued a Bulletin in April 2012, announcing its intention to get the "surprise" out of servicing.   called  "is considering s reach includes all lending institutions, making this

New York
 

New York is demanding a detailed accounting of the expenses, claims payments and profits of nine insurance groups it says are involved in the business in New York, and telling them it plans a hearing in May on the issue.

 

(Read More...)

Checking for Insurance
on Your
Equity Loans?
 

While equity lending has been a boon for lenders, the administration (servicing) of equity loans - for insurance compliance - can be challenging.

As a mortgage loan, insurance coverage should be maintained at all times, in order to protect the lender's interest.  But equity loans, with many lenders, are originated and serviced in the installment loan department, which are not set up for escrows, and other "1st mortgage" needs.  Thus, for insurance purposes, it's like fitting a square peg into a round hole. 

 
In addition to compliance, there is always the issue of cost.  Lenders have several options - with differing complexities and costs - to ensure proper due diligence and insurance compliance. 

Equity Loans – What is the Actual Risk?

Consider that equity loans…

  1. Rarely, if ever, go to foreclosure
     
  2. Almost never result in loss, due to uninsured physical damage (i.e. a fire) to the collateral property
     
  3. Have floating balances, making it hard to monitor, or later force place, for the proper amount of insurance
     
  4. Do not command the high level of insurance documentation as do 1st mortgages (from insurance carriers and agents).
     
  5. Might possibly be simultaneously tracked by another lender - the first mortgagee.  A duplication of procedure

Equity loans do then present risk to the lender, albeit risk that is extremely low, and certainly not equal to the average 1st mortgage.

(Read More...)


LendersNews

is for financial institutions, with particular interest to:
Sr. Management
Loan Serv. Mgrs
Risk Mgrs
Compliance Mgrs
 Ins. Agency Mgrs.

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