Media Coverage
Source: MortgageOrb
Media Coverage
11.27.13
The Federal Housing Finance Agency said in early November that it is directing Fannie Mae and Freddie Mac to prohibit servicers from being reimbursed for expenses associated with captive insurance arrangements to resolve issues surrounding lender-placed insurance (LPI).
Robert Wallan, a litigation partner in Pillsbury’s Los Angeles office, explained that the LPI controversy has been around for years but has received more attention lately. “A lot of it is reactionary to the recession and the drop in the housing market,” he said. “When you have a high number of foreclosures and borrowers that are in some distress, you tend to have an increase in defaults, not only in payment of loans but also a failure to pay insurance premiums.”
He noted that insurance is regulated by states, and some states have taken a more aggressive approach. For example, earlier this year, the governor of New York announced settlements with Assurant Inc., QBE, Balboa, and American Modern, which included restitution for homeowners who were harmed and $25 million in penalties.
Wallan cautioned that this issue is not just of concern to the insurance industry and advised servicers to make sure that they are up-to-date on rule changes. “It’s more complex than, ‘high premiums are bad,’” he said, adding that lender-placed insurance is not underwritten and that risk drives some of the high premiums.