Lender-placed insurance use continues as loan performance improves a bit, the market evolves and the coverage continues to weather compliance challenges.
Among trends affecting this area has been in some cases a shift away from vacant properties and toward rental properties in terms of coverage needs, said Loan Protector vice president Mike Dimas.
Another trend Dimas said he has seen is a lot of “voluntary and involuntary” downward pressure on rates. This is due in to regulatory pressure, but also some increased competition from newer insurance companies coming into the space, he said.
When it comes to regulatory challenges, Loan Protector’s managing partner Dennis Swit said that Loan Protector has over the long term stuck to industry best practices in a manner that effectively addresses compliance concerns. “It is nothing new for us,” Loan Protector’s VP of compliance Ken Evans said.
Compliance-wise, making sure borrowers are notified enough times and far enough in advance before placing the insurance is the big concern, the Loan Protector executives said. When asked if automation is used in tracking, the Loan Protector executives said the evolving status of regulation has created somewhat of a challenge in this area.
Also asked about this in a separate interview, Tom Elder, All Risks program manager, financial institutions, and manager of the REO program, said, “There are companies out there that will automate the tracking and try and do the best job they can at it.” But he added that the fact that compliance is in flux is generally a challenge as regulators have had difficulty to date “getting something in place that is going to stick for specific guidance.”
It is better from a control standpoint not to outsource compliance unless a financial institution is relatively small and does not have the resources to keep it in-house, Elder said.
Wolters Kluwer Financial Services senior attorney Andy Dunn, who works in the company’s mortgage area, said in a separate interview his advice when it comes to LPI compliance is for market participants to implement anything related to consumer protection safeguards “as soon as they can.”
“Don’t wait for…the implementation dates,” he said.
“I think really the key is policies and procedures, training and documenting what you did on an individual, loan by loan basis,” Dunn said, stressing that “the outcome to the individual consumer matters” to regulators.
From a compliance perspective, Elder said, there is a tremendous amount of uncertainty.
When asked how mortgage bankers are tackling this, he said, “generally speaking, they are going to specialty programs like ours where we have an understanding of what compliance is and [make] sure…programs are compliant both from a cost perspective and also from a notification perspective.”
“It’s always safe to stay within the guidance that has been proposed,” he advised.
A particular focus in compliance is ensuring “people are being notified of the true cost,” Elder said.
“What the regulators are really looking for…and where lender placed insurance got a black eye was [related to] some of the companies that were setting up business arrangements or setting up insurance companies in order to profit,” he said. “A lot of that went away but the black eye did not.”
When asked how his company contends with this he said, “We explain it. We have a compliance program and we know it’s compliant.
“We let people know this isn’t homeowners insurance. The insured has no control over whatsoever, meaning…they can’t maintain the collateral. It’s a very high risk insurance product.”
Elder said he also has been advising financial institutions to carry mortgage impairment policies, also known as errors and omissions policies.
“This covers for errors in servicing,” he said, noting that one of the biggest ones involves properties that are not reported correctly such as a situation where notification related to a lapse in coverage is not communicated properly.
When asked if use of coverage is growing, he said, “We are seeing an increase in policies but…not necessarily every agent out there knows of it,” and not all insurers offer it.
Overall, despite all the compliance and other challenges, Elder said the overall amount of LPI activity is “holding status quo.”
