The Federal Housing Finance Administration’s (FHFA) proposal to restrict lender-placed insurance (LPI) could result in higher costs for borrowers as well as for Fannie Mae and Freddie Mac, ABIA and ABA said in a comment letter last week.
The FHFA’s proposal would prohibit sellers and servicers from receiving sales commissions for placing coverage or maintaining placement with particular insurance providers. It also would prohibit reinsurance activities between insurers and servicer affiliates.
ABA and ABIA said these changes fail to recognize the cost and value of LPI-related agency activities and reinsurance arrangements. They also would shift lender-placed insurance costs from borrowers who fail to obtain required insurance to all borrowers in a servicer’s or seller’s portfolio.
The trade groups also noted that a new Consumer Financial Protection Bureau rule requires servicers to advance funds for homeowner’s insurance premiums when escrowed funds are depleted. “Those rules become effective in January 2014 and should be given a chance to impact the LPI market before further actions are taken.”
Read the comment letter.