With the Consumer Financial Protection Bureau planning new rules on force-placed insurance in the coming year, at least one credit union servicer is taking proactive steps to try to make sure homeowners can afford coverage.
State Employees Credit Union, for example, recently released statistics showing less than 1% of its mortgages have required force-placed insurance.
The Raleigh, NC-based not-for-profit cooperative, which services more than 125,000 mortgages totaling more than $12 billion, also said only 0.6% of its loans have required force-placed insurance for more than 90 days.
Among the steps it believes have kept its force-placed percentages from rising above these amounts have been mandatory escrow requirements, in which members earn interest on their escrow accounts.
Mark Coburn, senior vice president of loan servicing, said in a press release that the CU helps borrowers budget for the annual cost of homeowners insurance through the required escrow account.
Other strategies it has used to contain its force-placed percentages have included close tracking of insurance status by its servicing staff, using functionality in a real estate system it has that helps the credit union contacts members as soon as the CU receives an insurance cancellation.
The credit union said in many cases notification is received two to four weeks before the actual date the insurance is cancelled, giving the financial institution an opportunity to try to resolve the concern with the borrower.
Once a cancellation date is reached, the member is given another opportunity to resolve the issue and the credit union said the staff also reaches out and gives the borrower quotes for traditional insurance.
Even if it is not possible for the members to keep their consumer policies in place and a force-placed policy is still necessary, the credit union said its price for the for the policy is still below what some other financial institutions charge.
According to State Employees' data, industry cost on average for force-placed policies can be up to 10 times that of traditional insurance. The CU pegs its traditional insurance cost at $0.435 per $100 of coverage as compared to $0.85 per $100 for force-placed insurance, or less that two times the cost of traditional insurance.
State Employees also said its lender, servicing and collections staff are all salaried and insurance commission cash streams “are not used to compensate, reward nor incent product placement, which [might] create the potential for conflicts of interest in member service decisions” if they were.
The credit union said it agrees with CFPB proposals that would prevent servicers from charging for force-placed insurance unless there is “a reasonable basis to believe that borrowers have failed to maintain their own insurance.”
