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Wednesday, August 6, 2014

NYDFS Letter A Warning to Servicers on LPI

By: ABIA Outside Counsel Adam D. Maarec, McIntyre & Lemon, PLLC

In a scathing letter, Superintendent Lawsky of the New York Department of Financial Services questioned the financial basis for commissions and fees in a large mortgage servicer’s lender-placed insurance program. The letter serves as a warning shot to other financial institutions engaged in force-placed insurance and is a must-read.

The letter is focused on a mortgage servicer’s use of an affiliate and its receipt of 15% commissions for “insurance placement services,” which the NYDFS suspects are dubious services (“It is unclear what insurance placement services, if any, [are being provided] to justify these commissions”). The letter also scrutinizes annual technology support fees, loss draft management services, and other unidentified services that generate fees for the mortgage servicer’s affiliates. The NYDFS concluded the letter with 15 thorough questions and requests for information on these topics and the corporate decision making process for deals with affiliates.

The public nature of this information request indicates that Lawsky wants other mortgage servicers to be aware of its continued concern with force-placed insurance fee arrangements. Last year, the NYDFS brought enforcement actions in connection with force-placed insurance and issued a new force-placed insurance regulation.

Read the NYDFS Letter.

The ABIA has a Task Force of members that work on Lender-Placed Insurance issues. If you are an ABIA member and would like to learn more about ABIA's work on LPI, please contact us and visit our website.