CFPB considers new rules for fair force placed insurance

Forced placed insurance gets the squeeze.

Forced Placed InsuranceThe Consumer Financial Protection Bureau (CFPB), the country’s consumer watchdog agency, has put forward newly proposed rules for mortgage servicers which would require them to provide borrowers with better disclosure of fees, force placed insurance, and interest rates.

According to the director of this newly formed organization, Richard Cordray, “The mortgage servicing rules we are considering reflect two basic, common-sense principles – no surprises and no runarounds.”

The CFPB provided the proposal details, in a statement which included information about a measure that would require mortgage servicers to distribute monthly statements to the borrowers, in order to provide a breakdown of all of the payments that are being made, so that those borrowers can better understand the way that their payments are calculated. They will have regular access to the knowledge of how much of the payment is made up of interest, fees, force placed insurance premiums, and actually paying down the principal amount on the loan.

Furthermore, delinquent borrowers would also be sent alerts and contact information about professional counselors who are able to assist them in an attempt to stop from undergoing foreclosure. An additional proposal suggested that mortgage servicers be required to give advanced notice to borrowers when there would be a change in the interest rate, in the case of homeowners who have mortgages with adjustable rates.

The CFPB is also thinking about a regulation that would provide consumers with enhanced rights and increased information before their mortgage servicers are allowed to charge them for expensive force placed or hazard insurance.

In circumstances when a borrower has inadequate private insurance, or when they have allowed that coverage to lapse, the mortgage servicer will then purchase insurance coverage on the borrower’s behalf, and at his or her expense. This is force placed insurance. What the CFPB has discovered, however, is that the premiums for this coverage are usually higher than what would be available to the borrower if he or she was to purchase the coverage privately.

Therefore, the CFPB has proposed that in order to assist borrowers, mortgage servicers would be required to provide them with a good-faith estimate of how much the insurance would cost if they were to provide it. It would also have to terminate the force placed insurance within 15 days of receiving evidence from the borrower that private insurance coverage has been purchased.

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