Consumer Advocates Urge FHFA to Curb Lender-Placed Insurance Problems
Date: May 28, 2013
In this comment to the Federal Housing Finance Agency (FHFA), CRL and seven allies comment on proposed practice limitations and broader recommendations regarding lender-placed insurance (LPI). LPI markets are characterized by reverse competition in which LPI premiums paid by mortgage servicers and LPI amounts subsequently charged to borrowers and investors areinflated because LPI insurers/vendors compete for the servicers’ business by providing considerations – kickbacks – to the servicers and including the cost of these considerations in the LPI premiums and LPI amounts charged to borrowers and investors. The extent of the overcharges is demonstrated by the very low loss ratios (claims incurred divided by premiums earned) of LPI compared to loss ratios for homeowners insurance. LPI charges to borrowers and investors are at least twice the reasonable cost of providing LPI. In addition, excessive LPI charges to borrowers and the government-sponsored enterprises (GSEs) are a source of servicer-induced foreclosures, and such excessive charges are also inconsistent with the mission and affordable housing goals of the GSEs. For these reasons, CRL and its allies support the direct purchase by GSEs of LPI and insurance tracking services and support prohibitions against kickbacks from LPI insurers/vendors to mortgage servicers.