Fannie Mae is dealing with force placed Insurance. That is Insurance under a contract provision that confers the power on a Lender to place Insurance on a Home or other collateral at the expense of a Mortgagor-Borrower.
The typical contract provision applies where the Mortgagor-Borrower has not kept up with Insurance payments on the Mortgagor's Home. Recently force placed insurance has caught attention for reported abuses in which such Insurance has been forced upon Homeowners who are not delinquent in paying their own Homeowner's Policy Premiums, or in which such Insurance has been placed by mortgage servicers with companies which which they, the mortgage servicers, allegedly have a financial relationship involving their receipt of a percentage of the new Premium money.
Fannie Mae has adopted "new mortgage servicer guidelines" based on an inherent recognition of a special relationship between the Lender-Mortgagee and the Borrower-Mortgagor under a contract that confers a "force-placed Insurance" power on the Lender-Mortgagee. Download Fannie Mae Mortgage Servicer Guidelines.svc1204.
The Courts have applied a developing recognition of many kinds of "special relationships" in which one party reposes special confidence or trust in another party. These special relationships, like the one recognized by Fannie Mae's new mortgage servicer guidelines, have drawn the law's special attention because of the potential for abuse by the party with the power in such relationships, and the terribly damaging effects on the weaker party when that abuse occurs. See generally 1 Dennis J. Wall, "Litigation and Prevention of Insurer Bad Faith" ยงยง 3:31 - 3:35 (Third Edition 2011, 2012 Supplement West Publishing Co.).
Viewed in that light, the basic provisions of the new mortgage servicer guidelines make perfect sense. They include:
- It is in the Mortgagor's-Borrower's best interest to keep the pre-existing Insurance in place whenever possible and the mortgage servicer is required to act in ways designed to accomplish that result: The mortgage servicer is required to keep the Mortgagee's-Borrower's own Homeowner's Insurance Policy in effect if at all possible, "even if that means advancing money to cover the past-due premium."
- Disclosure: The mortgage servicer is required by Fannie Mae's new guidelines to contact the Mortgagee-Borrower at least two times and inform them that there is a greater Premium involved in force-placed Insurance (which will be added to the monthly Mortgage payment whether the Borrower likes it or not), and that the force-placed substitute will provide Insurance Coverage only for the structure, not the contents of the home.
- Reimbursement: The mortgage servicer is also required by the new guidelines to refund Premiums on canceled policies to Borrowers who themselves find and pay for the contracted Insurance "within 15 days of receiving evidence of other coverage."
Here is where you come in, good reader. The Consumer Financial Protection Bureau has pursued and is pursuing seven of what it calls "rulemakings" with related requirements on this issue. Most of these "rulemakings" generally take effect on January 21, 2013 says the CFPB, but two have Comment Periods which close on Tuesday, October 9, 2012. Here are links to both and to hyperlink portals through which you can leave your Comments as you may wish: 2012 Truth in Lending Act (Regulation Z) Mortgage Servicing and although both relate to the issue, the more pertinent as between the two proposed regulations: 2012 Real Estate Settlement Procedures Act (Regulation X) Mortgage Servicing Proposal.
Act now. This is the time of year when Major League Baseball teams are in the playoffs and Umpires are there making the call. This is your chance to Comment and Make the Call on something that is more important even than baseball to all the Mortgagors and Mortgagees who are caught in the Hephaistos chain of force placed insurance.
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