New CFPB Rules Will Restrict Force Placed Insurance in 2014 By Tod Aronovitz | 09/05/13 | 0 Comment

A new rule that imposes restrictions on when and how mortgage servicers may purchase force placed insurance is among the many provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

The Consumer Financial Protection Bureau (CFPB) has adopted new and stronger mortgage servicing rules, effective January 2014, to protect borrowers from being hit by costly insurance services or getting the runaround when they need answers.

Starting in January, the CFPB’s new rules ensure consumers will not be surprised that their property is covered by force-placed insurance, which includes hazard, flood, fire, or other insurance purchased by mortgage lenders when borrowers do not maintain insurance on their property. These policies are often more expensive than what borrowers can secure on their own.

In addition, mortgage servicers:

  • Will need to have a “reasonable basis” in deciding whether consumers lack sufficient insurance before purchasing a new force-placed insurance policy.
  • Must make this decision on a case-by-case basis, provide the borrower advanced notice prior to obtaining the forced-placed policy, and notify the borrower annually before renewing the policy.
  • Will be required to update their policies and procedures to ensure compliance with these requirements, as well as update their systems to ensure that the proper notices are sent.

If “reasonable basis” is not demonstrated, mortgage servicers will be required to terminate the force-placed policy within 15 days and issue a refund for any premium collected.

Only mortgage servicers that service 5,000 or fewer mortgage loans that they, or an affiliate, originate or own are exempt from the new regulations.  These would include community banks and credit unions.

The CFPB has been working with mortgage servicers to ensure a smooth transition, and in tandem with other agencies, will issue user-friendly implementation guides, release materials helping servicers understand supervisory expectations, and give consumers information about their new rights and responsibilities.

These new rules will be a welcome improvement for mortgage holders in Florida.  The state ranks number one in all the force-placed insurance policies written in the country, as we reported in our July 16 Aronovitz blog, “Florida Force-Placed Insurance May Lead to Higher Costs, Less Coverage for Homeowners.”

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