Force-Placed Frenzy

March 26, 2013 at 7:49 am Leave a comment

imagesThis morning I can’t help thinking that regulators sometimes act like the guy playing defense who runs onto a pile of tacklers about five seconds after the play ended just so he can be part of the action.  The latest industry to be taken through the mill for its perceived excesses is the force-placed insurance industry.  The Wall Street Journal reports that later today the Federal Housing Finance Agency (FHFA), which oversees the ostensibly bankrupt Fannie Mae and Freddie Mac, will issue proposed regulations banning fees and commissions paid by insurers to financial institutions.  The proposal will have a 60-day comment period.  Fannie and Freddie  are responsible for at least half of all outstanding mortgages, so any regulations they make will become the defacto industry standard.  But the FHFA is simply the latest regulator to clamp down on the industry.

Last week, New York’s Department of Financial Services announced a multi-million dollar settlement with Assurant, Inc., the nation’s largest force-placed insurer, under which it will pay a $14 million penalty to the Department.  Among the practices criticized by the Department was the paying of bank “expenses” related to force-placed insurance.  These expenses typically represented a percentage of the premium imposed on the home owner.

But wait, there’s more.  Not to be outdone, as part of its mortgaging reform regulations, effective January 2014 the CFPB is requiring that servicers managing escrow accounts pay the insurance premiums for delinquent insurance where such premiums are cheaper than the cost of force-placed insurance.  So, in other words, in the span of about six weeks, we have three separate actions to address the same problem.  Lost in all this regulatory frenzy is the wacky idea that there is no need for reforming the industry in the first place since the only time consumers have to pay for force-placed insurance is when they neglect to pay their bills.

To be sure, New York’s Department of Financial Services points out that commissions and fees paid to financial institutions do little to keep the rates of such insurance reasonable, but to be blunt, people should have to pay higher forced-placed insurance as a disincentive for not paying their insurance premiums in the first place.  There is nothing more difficult to deal with than an uninsured house after a storm has hit.  Is this another example of forgetting that the consumer has a responsibility to pay his or her bills?  I’d say yes.

Johnson Not to Seek Re-election

South Dakota Democrat Tim Johnson is reportedly going to announce later today that he will not seek a fourth term in the U.S. Senate.  Johnson is the Chairman of the Senate Banks Committee and there is already speculation about who may succeed him should the Democrats hold on to the Senate majority.  Aside from the banking angle, Johnson’s retirement adds one more name to the list of retiring Democratic Senators whose seats are potential Republican pick ups.

Entry filed under: Compliance, New York State, Political, Regulatory. Tags: , , , , .

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Authored By:

Henry Meier, Esq., General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association.

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