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Tuesday, March 26, 2013

FHFA Notice: Ban Fees and Commissions from Lender Placed Insurance

The FHFA, Conservator of Fannie Mae and Freddie Mac, has issued a Notice that addresses lender-placed insurance (LPI) practices, effectively banning fees and commissions associated with LPI.

ABIA's Kevin McKechnie was quoted in the Wall Street Journal article, "U.S. Cracks Down on 'Forced' Insurance" saying, "We continue to work with regulators to deliver collateral insurance in the best way possible... [The New York action] could limit the number of servicers and force smaller institutions out of the business, which would have a negative impact on consumers."

Specifically, the FHFA proposed prohibiting sellers and servicers from receiving sales commissions for placing coverage or maintaining placement with particular insurance providers. The proposal also would prohibit reinsurance activities between insurers and servicer affiliates.

The proposal comes a month after the FHFA rejected a Fannie Mae plan requiring mortgage servicers to use a Fannie-approved consortium of insurers that would have purportedly provided significant premium discounts.

In place of the plan, the FHFA asked Fannie to work with Freddie Mac and a group of mortgage industry trade associations to study lender-placed insurance costs further. The agency indicated yesterday that it will continue with a broader review of issues related to lender-placed insurance but that “the practices that are addressed [in the proposal] are considered sufficiently distinct as to merit early action by the Agency.”
The FHFA is accepting public input, comments are due 60 days following publication in the Federal Register. ABIA will coordinate with our members on our response to the FHFA.  Final guidance from Fannie Mae and Freddie Mac is expected in September.

Read the FHFA Notice.