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Friday, April 19, 2013

FHFA's DeMarco Indicates Policy Decision on LPI

Yesterday, the Senate Banking Committee held a hearing where Federal Housing Finance Administration (FHFA) Acting Director DeMarco testified on the state of the Housing markets and the GSEs. His written testimony seems to indicate that FHFA has already made a policy decision with respect to LPI (p 10):

"Another policy project of note is the development of an aligned set of standards for so-called force placed, or lender-placed, insurance. The various concerns with lender-placed insurance are well-known, including the costs, limitations on coverage, and consumer protections. FHFA recently sent a Notice to the Federal Register setting forth an approach to address certain practices relating to lender-placed insurance that we consider contrary to prudent business practices, contrary to appropriate administration of Enterprise guaranteed loans, and which expose the Enterprises to potential losses and safety and soundness risks...

These practices include sales commissions received by sellers and servicers when placing coverage or maintaining placement with particular insurance providers, and remuneration received by sellers and servicers from insurance providers that cede premiums to a reinsurer that is owned by, affiliated with or controlled by the seller or servicer. After receiving input during the 60 day period provided for in the Federal Register Notice and after FHFA review, we would anticipate the Enterprises putting these change in practices into place over a several month period... (emphasis added)

We also plan to pursue a broader approach to lender-placed insurance, bringing together both public and private sector parties to participate in a dialogue with us and with a wide range of stakeholders. Our goal is to establish a set of standards that could be adopted by a broader set of mortgage market participants, similar to what was done with the Servicing Alignment Initiative. This broadened approach will also enable greater regulatory coordination in an effort to consider the various issues associated with lender-placed insurance."

FHFA will accept comments until May 28, 2013.

Watch a webcast of the Hearing.