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CUNA Mutual: How the CFPB Ruling Impacts Your Real Estate Collateral Protection Program
Wednesday, July 9, 2014 6:25 AM

The final rules regulating mortgage servicing from the CFPB went into effect Jan. 10, 2014. One rule impacts the use of lender-placed insurance. If you self-insure collateral losses, Kriss Besch, a collateral protection support manager for real estate products at the CUNA Mutual Group, says credit unions should ask themselves if they are prepared to take steps to ensure their organization’s compliance. If your credit union leverages a vendor, Besch says it’s important to make sure you ask the right questions to confirm they’ve taken steps to remain compliant with the new rule.

“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,” explains Besch. “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.”

According to Besch, 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,” she notes. “All notices must contain specific details contained in the rules, including bolded statements and detailed requests for information.”

Besch recommends the following steps:

  • 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.

When looking for a collateral protection insurance provider or mortgage servicer, Besch suggests you ask the following questions:

  1. How do you handle advancing funds through escrow to continue a borrower’s insurance coverage?
  2. What is your notification cycle?
  3. Do notices include all required elements, such as bolding, premium costs and contact information?
  4. Do you cancel lender-placed insurance and refund premiums within the 15-day requirement?