On January 10, 2014, the final rules regulating mortgage servicing from the Consumer Financial Protection Bureau (CFPB) went into effect. One rule impacts the use of lender-placed insurance. If you self-insure collateral losses, are you prepared to take steps to ensure your credit union’s compliance? If you leverage a vendor, have you asked the right questions to confirm they’ve taken steps to remain compliant with the new rule?
New escrow requirements
If you are escrowing for a credit union member's homeowners insurance, you’re not permitted to let the insurance cancel – even if the member is delinquent on their escrow payments. You must continue to pay for any existing insurance policy, rather than force place insurance.
When a delinquent borrower’s escrow account has insufficient funds to cover payment of the hazard insurance premium, you must advance funds through escrow to continue coverage. This does not apply to flood insurance or insurance canceled for any reason other than non-payment.
New notice requirements
First notices must be sent at least 45 days before you charge the member for lender-placed insurance. Second notices must be sent at least 30 days after sending the first notification and at least 15 days before you force place insurance. An annual reminder must be sent at least 45 days before renewing the policy.
If a member provides proof of insurance after they’ve been billed for lender-placed insurance, servicers must cancel the lender-placed insurance within 15 days and refund any premiums and fees paid.
All notices must contain specific details contained in the rules, including bolded statements and detailed requests for information.
Steps to take
Work with your mortgage servicer or data processor to ensure you can identify which mortgage loans have escrow accounts, or develop procedures within your credit union to identify them.
If you work with an insurance tracker, identify the escrow loans in your data file or through a manual process to prevent insurance cancellations due to non-payment. You will still need to be able to force place when the insurance is canceled for other reasons.
Make sure your internal staff, especially your technology and Compliance Officer, is up to date on recent changes. If you are self-insuring, consider implementing a collateral protection program; there are programs that do not require force placing insurance on your borrowers.
Questions to ask
When looking for a collateral protection insurance provider or mortgage servicer, make sure you ask four questions:
How do they handle advancing funds through escrow to continue a borrower’s insurance coverage?
What is their notification cycle?
Do notices include all required elements, such as bolding, premium costs and contact information?
Do they cancel lender-placed insurance and refund premiums within the 15-day requirement?
Following these guidelines will help ensure you continue to reduce your lending risk in a way that’s compliant with the CFPB rule.
For more information, LOANLINER customers can read more at loanliner.com/realestate. Kriss Besch is a Collateral Protection Support Manager for Real Estate products at CUNA Mutual Group.