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Tuesday, November 5, 2013

FHFA Issues Guidance on LPI: Update from the FHFA

FHFA issued a news release yesterday with guidance on Lender-Placed Insurance (LPI). FHFA directed Freddie & Fannie (GSEs) to prohibit servicers from being reimbursed for expenses associated with captive reinsurance arrangements.

Although not included in the news release, the ABIA has been subsequently informed, through a clarification from the Agency, that FHFA ordered the GSEs to issue guidance that would, “Prohibit their approved servicers or agents, brokers or other entities affiliated with the servicer from receiving compensation in the form of commissions or similar incentive based compensation regardless of its designation as commission, bonus, fees or other type of payment from lender placed insurance (LPI) carriers.”

Unless there are further clarifications from FHFA, the next step is to learn how long it will take for Fannie/Freddie to implement the rule change, whether the change applies going forward or retroactively and how these prohibitions interact with state insurance regulation.
FHFA's announcement follows a Notice and request for public comment that FHFA published in the Federal Register in March regarding its views on these LPI practices. ABIA and ABA submitted comments to the FHFA in May.

Learn more from the FHFA.