Publications

FIO Focus, Issue No. 20

CFPB Proposes Regulations for Mortgage Servicers Regarding Creditor-Placed Insurance
08.27.12

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Devoted to exploring the progress of the modernization of the insurance industry, FIO Focus provides information and insights about the organizations and issues that are driving change and influencing the future of the industry.

CFPB Proposes Regulations for Mortgage Servicers Regarding Creditor-Placed Insurance

On August 10, 2012, the Consumer Financial Protection Bureau (CFPB) published proposed rules for mortgage servicers regarding creditor-placed insurance. Under the proposed rules, mortgage servicers would be required to provide two notices prior to charging borrowers for creditor-placed insurance:

  • The first notice must be sent at least 45 days in advance of the premium charge or assessment of any fees.
  • The second notice serves as a reminder and may not be provided until 30 days after the first notice.

The notices are to include, among other things, a cost estimate of creditor-placed coverage and a statement that the insurance obtained may cost more and not provide as much coverage as a hazard policy. Mortgage servicers will also be required to send annual notices regarding renewal or replacement of existing creditor-placed coverage.

Under the proposed rules, mortgage servicers would be required to make timely payments from a borrower’s escrow account to maintain the borrower’s existing hazard policy unless there is a reasonable basis to believe that the policy was cancelled for reasons other than nonpayment of a premium. The proposed rules also compel mortgage servicers to advance funds to maintain existing hazard policies when the borrower has an escrow account, but there are insufficient funds to pay for the policy. The CFPB has requested comments regarding an alternative proposal which would allow mortgage servicers to place creditor-placed coverage only when it is less expensive than advancing funds to maintain the existing hazard policy.

The CFPB also requested comments on whether:

  • There should be a requirement that creditor-placed insurance protect the “borrower’s interest;”
  • Mortgage servicers must pay premiums to maintain existing hazard policies when borrowers do not have escrow accounts;
  • Additional circumstances, other than receipt of a cancellation notice, could provide a servicer with a “reasonable basis” to believe that a borrower’s hazard insurance has been cancelled or not renewed for reasons other than nonpayment of premium charges;
  • The proposed rules should be extended to cover open-ended lines of credit, including home-equity plans; and
  • Servicers should be required to ask borrowers who have not escrowed for hazard insurance if they would consent to the servicer renewing the borrower-obtained hazard insurance and paying future premiums.

Director Huff Reappointed to the FSOC

The Executive Committee of the National Association of Insurance Commissioners (NAIC) reappointed John Huff, Director of the Missouri Department of Insurance, Financial Institutions and Professional Registration, to a second two-year term on the Financial Stability Oversight Council (FSOC). Director Huff is the sole insurance commissioner on FSOC. Additional insight into the FSOC is provided in “FIO Focus,” issue 5.

Comments Submitted Regarding the FIO’s Global Reinsurance Report

On June 27, 2012, the Federal Insurance Office (FIO) requested comments regarding its statutorily mandated report on the global reinsurance market. “FIO Focus,” issue 16 provides the list of the topics on which the FIO is seeking comments related to the global reinsurance market report.

Comments available on Regulations.gov as of August 21, 2012, include:

  • Support for the FIO;
  • Concerns that collateral requirements placed on non-U.S. reinsurers are anticompetitive as well as discriminatory against foreign reinsurers operating in the U.S.;
  • Concerns regarding the NAIC’s revised Credit for Reinsurance Model Law and Regulation, including a concern that the model laws would create an overly complex system, would not promote the creation of a unified system because they are not binding on the states and would grant too much discretion to state insurance commissioners;
  • Concerns regarding the application of the federal excise tax to reinsurance transactions;
  • A discussion regarding the need for the FIO to integrate the insurance supervisory system at the federal level and be actively involved in international insurance issues;
  • Debate regarding the importance of reinsurance in protecting both insurers and state run insurance plans from financial exposure to catastrophe risk;
  • Opposition to legislative proposals that would levy tariffs or deny tax deductions for global reinsurance transactions; and
  • Concerns regarding government reinsurance programs, including arguments that they reduce customer choice, increase moral hazard, discourage private risk mitigation and subsidize high-risk policyholders at the expense of low-risk policyholders.

The comment period ends August 27, 2012.