Lender-placed insurance evaluations and "certain features or practices associated with lender-placed insurance policies that have been the subject of documented abuse and overcharging" are examples of issues on which the FHFA and the enterprises will continue to focus in 2014.
An FHFA spokeswoman had no immediate comment at deadline on what it specifically will focus on, but odds are it will shift the balance between consumer and business interests back toward consumers.
"Director Watt when he was sworn in said that one of his areas of great interest is consumer protection, so I would expect he is going to take a look at this area and probably do more of that," says
The lender-servicer placement of insurance on borrowers who fail to maintain flood or hazard coverage has long been a lightning rod for consumer complaints. It is often an additional fee charged to borrowers already struggling to pay their mortgages. It's on average two to four times more expensive than borrower-placed insurance because among other things, the insured party lacks control of the property. However, lender-servicers and investors say they would not be able to make or buy loans without the coverage because of the inordinate risk involved.
Some borrowers have alleged they failed to get required notification of a lapse in their coverage in time to head off the force-placement of the higher-priced coverage. In other cases, consumer advocates allege insurers have paid improper commissions to affiliated lender-servicers for the business. These concerns became most prominent when foreclosures boomed after the 2007-2008 downturn.
The most recent agency lender-placed insurance reform generally aims to protect consumers from conflicts of interests. These include insurance commissions from affiliates. The
The most recent round of lender-placed insurance reform at
Under that plan, Fannie would have taken more direct control of the lender-placed insurance process by providing coverage through a consortium of carriers that would offer discounts as high as 30% to 40% from current market rates. The industry protested the plan, saying it represented too radical a change and had the potential to interrupt the market.
The FHFA later vetoed
Industry representatives, attorneys and observers have shown some minor concern about the certification requirement but find it is preferable to the original Fannie plan.
Many indicated they were aware of the regulatory concerns surrounding LPI commissions and affiliates well ahead of
"There could be a few hanging on" to practices Fannie and Freddie are asking their seller-servicers to certify they do not engage in, but most are not, says
The few that remain were working to cut all ties with affiliates prior to the
"They've moved to either liquidate or sell their insurance agencies that they currently have," he says. "They need to meet this requirement."
The industry may be content with lender-placed insurance reform to date, but the FHFA's inspector general has criticized the agency's decision to pull back from the Fannie plan, and consumer advocates remain dissatisfied with it.
"You can't continue to allow the various kickback charges to flow through the system," Hunter says. The most recent reform at
There are lots of good alternatives for further and more effective force-placed insurance reform, he says. Among other things, there could be separate escrows to cover the liability. He prioritizes such approaches over efforts to improve borrower notification. Such moves are tantamount to telling borrowers, "Now can tell you more clearly we're screwing you," he says.
Though industry officials are skeptical the original
"I'm pushing for that and consumer groups are pushing for that," he says.
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