Last week, the Consumer Financial Protection Bureau released new regulations intended to restrict and control forced-placed insurance.
Under the proposed rules, mortgage servicers’ ability to impose forced-placed coverage with insurers will be limited. The mortgage servicers will need to have a “reasonable basis” to expect that a consumer lacks the needed insurance before purchasing a new policy. Servicers must make this decision on a case-by-case basis, and they have to notify borrowers before initially taking out the forced-placed policies and annually before renewing the policy.
If such “reasonable basis” is not demonstrated, the mortgage servicer will have to terminate the forced-place policy within 15 days and issue a refund for any premium collected.
The financial services industry has for many months expected the CFPB to issue regulations related to forced-placed insurance, though the development is not without some controversy. Though the Dodd-Frank Act, which created the CFPB, specifically excludes the “business of insurance” from CFPB’s jurisdiction, it has been widely expected that the CFPB would attempt to regulate forced-place insurance by targeting the mortgage servicers who do fall under the CFPB’s jurisdiction.
In a related development, the Federal Housing Finance Agency is reviewing a proposal by Fannie Mae to institute a process requiring mortgage servicers to only offer forced-placed insurance with a consortium of pre-selected carriers. This requirement would only apply to mortgages backed by Fannie Mae.
Reports indicate that, in return for belonging in this consortium, the companies would agree to charge 30%-40% less than current premiums.
It is unknown at this time when the agency might rule on Fannie Mae’s proposal.
The CFPB continues its very aggressive push for a greater role in financial services regulation. Also, recently the agency announced it is exploring whether it has any authority over retirement savings and investments.
John Prible is Big “I” vice president of federal government affairs.