The Bureau of Consumer Financial Protection has issued regulations and a "Supplement to Part 1024--Official Bureau Interpretations". Popularly known as the Consumer Financial Protection Bureau or "CFPB," it has made homeowner's insurance fraud possible, and immunized it, too.
The CFPB Official Interpretations make substitute or force-placed "hazard insurance" synonymous with substitute "homeowners' insurance" or substitute "property insurance". Of course, force-placed insurance is not homeowner's insurance. Force-placed insurance provides coverage only against a small number of risks or "hazards" such as fire, and in almost every case it only protects lenders, not homeowners.
The truth is that force-placed insurance is collateral protection insurance. That is not the Bureau of Consumer Financial Protection's interpretation, however.
Congress enacted the Real Estate Settlement Procedures Act in part to require lenders and their agents, known as mortgage servicers, to send notices to homeowners-mortgagors with specific language before insurance can be placed by force upon the homeowner. The language these congressionally required notices are supposed to contain is codified in 12 U.S.C.A. ยง 2605(l)(1)(A), (B) and (C). The CFPB previously issued proposed forms mirroring the identical language in Appendix MS-3-Mortgage Servicing Model Forms and Clauses.
The statute and the Mortgage Servicing Model Forms and Clauses which are supposed to implement the statute, all refer specifically to forced placement of substitute "hazard" insurance. That is actually what is being placed by force, namely, substitute "hazard" insurance to protect lenders against damage to or loss of collateral protection.
Now, the CFPB interprets the notices which are required to be sent to borrowers to refer to substitute "homeowner's" insurance. To say again, the insurance that is thereby placed by force is substitute collateral protection insurance.
Worse than that, the same Official CFPB Interpretation would immunize "good faith compliance" with its "Interpretation" from liability. It is scheduled to take effect on January 10, 2014. The Comment period has expired. If the Bureau does not withdraw this "interpretation," it will apparently be up to Congress to nullify it.
The official cite for the Official CFPB Interpretations is 12 C.F.R. 1024, Supp. I, and the official site is somewhere on http://www.consumerfinance.gov/regulatons. When there, check out the "2013 Real Estate Settlement Procedures Act (Regulation X) and Truth in Lending Act (Regulation Z) Mortgage Servicing Final Rules".
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